How to Refinance a Home: Step by Step


How to Refinance a Home Mortgage?

How to refinance a home is not terribly complicated if you know what to expect and are ready for the challenges that could come up.  The majority of the time, things go smoothly and as planned, especially if you have done your homework as far as choosing the right broker and making sure your home has the value you need.  It is important, however, to know how to refinance a mortgage through all the steps in the home mortgage refi process well so that you can foresee problems and react to them quickly even after the question “should I refinance my mortgage” is no longer relevant because you’ve locked.  We offer this section on how to refinance even for those who have done it before and may feel they know what they need to know.  This section of our website goes over the entire process in a way that should help you become an educated consumer.  The home mortgage industry is changing more quickly than ever these days as the result of recent problems and increasing regulations.  It makes sense to stay up to date on how to refinance your home even if you’ve done it before.

How to Refinance a Home: General Advice

We want to offer general advice when you are asking yourself how to refinance your home.  For example, don’t assume that your broker or bank is as organized as you can be.  Stay quite organized yourself, keeping track of every step of the process, hanging on to all the paperwork you receive, and making copies of everything you send.  And also make sure you get confirmation that whatever you’ve sent got where it was supposed to go, and also that someone reviewed it to be sure it was complete.  Ask for timelines, such as when you should hear from an appraiser, how long until your loan is approved, and how long it should take material you send to be reviewed.  And then track all of this on a calendar so you know if things are progressing as they should.

We also suggest that you carefully read everything that comes back to you, such as your credit report, the terms and closing statement that your broker or bank sends, and any other paperwork.  Check for accuracy, and be quick to call or write if something does not look right.  Generally stay in touch with your broker or bank along the ay so that you keep your loan in their thoughts, perhaps making sure that they are just a little more careful with your process.  And finally, don’t be afraid to ask questions along the way.  Again, while a site like this should be informative, your unique situation may call for unique answers as you look into how to refinance your home.

How to Refinance Your Mortgage: Tips and Tricks

On our “How to get the lowest mortgage rate” page we go over specific ways to ensure that you are getting the very lowest home mortgage refinance rate.  In addition to the means on that page, there are other tips and tricks that ensure that you know how to refinance a mortgage in a way that will lead you to  the best possible rate and terms, such as:

How to refinance a home so you can refinance again

Get a home mortgage refinance that allows you to refinance again soon. While in a perfect world you would want to know how to refinance a mortgage in a way that allows you to float down after you’ve locked your rate, just in case rates decline, these floats are actually hard to come by. Another way you can protect yourself against mortgage interest rates falling is to make sure that there is no period of time after you close that you have to pay a penalty for refinancing too quickly.  One way or another you want to be asking your self “should I refinance my home mortgage” even after you’ve just closed.

How to refinance a mortgage with your next refinance in mind

Always be preparing for your next home mortgage refinance. You may feel like your current mortgage has such a favorable rate and terms that you will never refinance again. However, many people make the mistake of letting their credit scores slide, not watching home values carefully for opportunities to consolidate debt, or not paying attention to current mortgage rates and they lose out on new opportunities to refinance.  Again, we want you to be asking that core question, “should I refinance my mortgage” often.

Your appraisal

Think about your next appraisal – don’t let things slide. If you let necessary home improvements and updates slide too much you could end up with a situation where you “fail” your next appraisal. In other words, the appraiser could be influenced by the fact that you have not kept up and may give you an appraisal that does not allow for the next refi.

How to refinance a home to a short term loan

Short term loans may be a better option than an adjustable rate mortgage. These shorter term loans will have attractive home mortgage interest rates, just like ARMs, but the rate will be fixed so the risk is lower. In addition 10 year mortgages may have lower costs than traditional 30 year fixed rate loans.

How to refinance a mortgage with cash out

If you do a cash out mortgage, know the tax laws since too many people get in trouble for unknowingly writing off interest that is not truly tax-deductible. Be sure you are aware of exactly what portion of your interest you can write off if you take cash out – it all depends on what the cash is used for.  Knowing how to refinance a home mortgage if you want to get cash back is important.

How to refinance a mortgage to a LOC

Many people turn to lines of credit that use their partially or fully paid off home as collateral for a low but often adjustable rate loan. These home equity lines of credit (HELOCs) often have lower rates than mortgages, and are usually based on the prime rate. They are a great way to get a low rate on money you might use for home improvements, college education costs, and other major projects. The drawback to home equity lines of credit is that they usually come with an adjustable rate, and those loans that do not often have a much higher rate than those that do.

Home equity lines of credit, both with fixed rates and adjustable rates remain highly popular and may still be a good choice if you will be paying them off very quickly or you only need a small amount of money, but for larger amounts or for the security of a longer term, a 10 year mortgage may be a much better choice. Ask your broker or banker for a comparison of these products to see which one might be better in your unique situation.

These are just a few tips that will help you get the best terms and lowest home mortgage refinance rate. We will continually update this page with more tips and tricks as time goes on. Also, please stay tuned for the latest information and advice about how to refinance your mortgage.

How to Refinance a Home: Fees

Mortgage broker fees can vary widely and are something that you absolutely have to compare when thinking about how to refinance your home.  They are a factor when you ask yourself “should I refinance my mortgage”.  In all the annual percentage rate or  APR can often help you assess the extent of mortgage broker fees and other costs, as can the truth in lending document you receive.  However, understanding the actual mortgage broker fees can give you an idea of whether you may be paying too much and what might be negotiable.  Thus we thought it would be helpful to list some of the more common fees you will pay in order to explore the answer to the question “how do I refinance my home?”:

Application mortgage broker fees

The mortgage broker fees that are often easiest to understand are the application fees.  These general charges from the broker or bank covers the their own costs of processing your loan.  This includes things like checking your credit score and processing your paperwork.  As opposed to the Origination Fee covered next, this fee is usually all about those activities that the broker or bank has to do up front to see if you even qualify and before you may have made a final decision.

Refundable: Sometimes – important to ask up front if you are at all concerned about your appraisal, your credit, or anything about closing your loan.  You’ll want to know if these mortgage broker fees are returned or possible partially returned if you do not close your loan, whether or not it is your fault.

Amount: The amount may vary a lot, and it they can sometimes be particularly high when the interest rate seems particularly low.  In general reasonable application fees will be between $0 to $500

Negotiable: Sometimes these mortgage broker fees are negotiable to some degree

Loan origination mortgage broker fees

This one is also squarely part of your mortgage broker fees and can almost be indistinguishable from the application fee.  Yet as opposed to being an up-front cost, this part of your mortgage broker fees is actually paying for the activities of the bank or broker after you have decided to move ahead with your loan.  It is the amount that is charged for the preparation of your home loan.

Refundable: Sometimes, similar to the application fee.  Make sure you know ahead of time how much, if any, will be returned if the loan does not go through and under which circumstances.

Amount: The amount again varies, and in some cases can be quite high.  Anywhere from $0 to $1,000 may be reasonable depending on other costs associated with your loan

Negotiable: Sometimes

Points

While not as much mortgage broker fees as underlying bank fees, points are basically a way for the lender to get money up front in exchange for a lower rate long-term or getting the loan at all.  One point equals one percent of your home loan.  There are two reasons you would end up “paying” points.  You might be paying loan-discount points, which are used to pay down your home mortgage interest rate, or you may be paying points just to get the loan itself if you have a low credit score or a great rate to begin with.

Refundable: N/A, since you do not pay points unless and until you close

Amount: As little as a quarter point can be charged by the bank

Negotiable: Yes, especially loan discount points may be negotiated

 Appraisal fee

This fee goes to the person providing the appraisal of your home or prospective home so it is not really part of mortgage broker fees.  In some cases it is even paid directly to the appraiser.

Refundable: Almost never

Amount: $250-400

Negotiable: No

Inspection fee

Particularly with new homes, the lender may want certain aspects of the home inspected to make sure you won’t face large unexpected expenses that could affect your ability to make mortgage payments.  This may include termite inspections, for example.  You may want to have a home inspection anyway, but often the lender will require it.  And like appraisal fees they are often paid directly to the inspector.

Refundable: Usually not

Amount: Depends on the type of inspection(s) needed – know what the going rates are

Negotiable: Yes – you can sometimes ask the bank to pick up these fees

 Homeowner’s insurance

Your lender will require that you have a homeowner’s insurance policy (sometimes called hazard insurance) in effect at the time of settlement of your loan.  The reason we list it here with mortgage broker fees is that you often have to pay a portion of this up front.

Refundable: No

Amount: Varies – you can shop around

Negotiable: No

Title search and title insurance

The lender will want a title insurance company to search the legal records to ensure that you are (for a refinance) or will be (for a new home loan) the rightful/legal owner of the property.  This search also checks for possible liens you may not know about and would cause you at the very least financial headaches.

Refundable: Usually not, but this step is usually not taken until most everything else has checked out, like appraisal and your credit.

Amount: Around $1000, sometimes less if a title search was done recently

Negotiable: Yes – not the price itself but whether the bank will pick up some of the cost out of the mortgage broker fees you paid in the first two categories

Survey fee

Lenders sometimes require a survey to confirm the boundaries of the property, though this is not always necessary.

Refundable: Usually not, but this is also something not done until the end

Amount: Varies from $200-500

Negotiable: Yes, again not the price but whether the bank will pay some or all

Cost = $150 to $400

These are all the main mortgage broker fees and related costs of your loan.  Knowing not only this general information but also what the going rates are for each category will help you ensure that you are not only getting the lowest rate but also the best deal on your refinance or new loan.  Being versed in this vocabulary and what each term means in the process will help you better answer the question of how to refinance a home.

Related to this topic, Investopedia goes over the advantages and disadvantages of using a mortgage broker and Bankrate provides a nice summary in their 5 steps to a successful mortgage refinance page.  Finally, Mortgage Calculator goes over how to refinance a mortgage.

How to Refinance a Mortgage You Don’t Own

It is less common than ever these days that sellers will finance the sale of their home.  In these cases the seller offers an interest rate and terms, and just like a bank holds on to the mortgage note until it is paid off, keeping their old home as collateral.  The benefits of this type of deal to the seller is that she or he can often charge a rate higher than what they might get with a conventional investment, with a tangible piece of collateral that they can sell off if the buyer defaults.  The benefits to the buyer are that there are usually far fewer closing costs and if she or he has bad credit or any other problems getting a mortgage those are not an issue.  But how to refinance a home if the seller holds the mortgage loan?

Let’s start by answering why these seller financed mortgage deals not very common?  It boils down to two major reason, one on each side.  For the seller, there is usually a need to buy a new property to live in and that usually requires the large amount of cash they will get by selling their original home.  Even if that money is merely being used to pay off an existing mortgage, the seller may need to do that to be able to afford another mortgage, or even to be approved for another mortgage.  For the buyer, lower mortgage rates are often available through a bank, and it is often not possible to refinance a seller-held mortgage when rates fall.  So in cases where the seller actually does decide to continue to hold the note they are doing this as an investment and hoping for a return.  One way or another they can afford to use the sale of their home as an investment vehicle.  Thus it is unlikely that they will refinance given that they don’t have to and would prefer to keep receiving the interest.

All of the above said, you may find that you can refinance a seller owned mortgage if you are taking cash out – the original seller may like the fact that the payments will go up, and she or he may be able to charge you a slightly higher interest rate.  Or you may find that a seller allows you to refinance if it means that you will be paying things back for a longer term.  In these cases you may be wondering how to refinance this type of loan and the answer is often quite simply that new documents are drawn up and signed by both parties

It should be noted that seller financed properties, and therefore seller held mortgages are a bit more popular with second homes and vacation properties however, since buyers often have more trouble getting mortgages for them, rates can be higher when they do, and sellers often don’t need the cash right away to pay for another property.  Thus these ingredients actually work together to change the dynamics when it is a vacation home.  And again, in these cases, the answer to how to refinance is quite simply that the original seller draws up new paperwork.  Usually an appraisal, credit check, and other steps are not necessary.

How to Refinance Your Home Conclusion

It’s absolutely vital that you do not sit back and make any assumptions about how well the process might go from the point that you have locked when you are looking to know how to refinance your mortgage.  Mortgage brokers are certainly incentivized to get you through the process, but when they have many other mortgages to close mistakes can happen and problems can ensue.  Don’t assume that their motivation will carry things through to a certain positive outcome, and instead follow the process closely, know the expected timelines.  Keep in mind that you are very much the customer here, and that there is someone besides the broker that wants to sure that your home mortgage loan goes through.  There is a bank behind all of this that is, quite literally, banking on your broker so if you are bugging her or him when something does not seem to be going right you representing both sides of the equation.  Knowing how to refinance your mortgage also means knowing when to prod your broker!

Thank you for your interest in our site, and we congratulate you for getting this far in the process – or if you have not been pre-approved or chosen a bank or broker for your refi, or you are still asking “should I refinance my mortgage”, you may want to start by asking how to refinance your mortgage.  We hope that the information here will help you know how to refinance a mortgage, and we welcome your input and advice as to how to refinance a home.