I have been working as a loan counselor for quite some time now and would have to say that approximately 60% of the people I speak to do not know exactly how the refinancing process works! I feel what better a subject for my first article here with longisland.com than to take you through the process step by step.
Refinancing your home is not as difficult or painstaking as you may think which you will come to understand by the end of this article. When people envision a mortgage loan they usually picture themselves writing out checks to every Tom, Dick, and Harry - this does not happen in a refinance. The first stage of refinancing is figuring out whether or not it makes sense for you to change your current loan. As a general rule, if your current loan percentage is 1.5 to 2% higher than the current average rate, then you may want to consider refinancing. Other situations that may warrant a decision to refinance could be to take out additional money, to consolidate your debt, or to pay for construction on your home, but the most common is to save money. I will cover all of these aspects and the different types of loans available in a later article.
Once a decision has been made to refinance, then a mortgage counselor should be consulted. The counselor will run a credit check to determine what state your credit is in. The most important item on your credit report is your mortgage payment history. As a general rule, if money becomes tight you should always try to pay your mortgage on time. The counselor will then work with you to figure out the term loan and rate that works best for you and a good (and free) faith estimate of your new monthly payments will be relayed to you. The estimated monthly payments given to you by the counselor should include all closing costs associated with the refinance. The average closing costs for a refinance run around 6-7 % of the loan amount. This may sound like a lot, but keep in mind in most situations you are still lowering your monthly payments or loan term. The only item that is not included in the closing costs is the appraisal fee that is usually paid directly to the appraiser, or in rare occurrences an application fee may be charged. At this time in order to go forward and lock in the rate given with the bank the counselor will request a few documents such as your W-2's, current pay stubs, most recent bank statement, homeowners insurance declaration, and a mortgage payment slip.
Once all documents are received, the counselor will get you locked in, hopefully at the rate given during the consultation. The rates fluctuate everyday similar to stocks, but not as volatile so you want to get your information as soon as possible to the counselor to avoid delays in getting the rate locked. Once the rate is locked, the counselor schedules the appraisal at a convenient time for you. Meanwhile, the bank underwriter sends a list, if any, of additional specifications needed to close the deal. The amount of specifications usually decreases the closer one gets to A credit.
Once all items are satisfied by the underwriter, the closing date gets scheduled. Again, no cash or check book is needed at the closing as all of the costs are included in the loan amount which makes a refinance a lot less stressful than a purchase as we all know! The entire process from start to finish for the average loan takes about 20 to 30 days.
I have included in my links a the mortgage calculators from Yahoo! These are definitely useful to tool around with; they offer opinions on whether to refinance or not, or you can use the mortgage payment calculator to calculate monthly payments based on specified mortgage rates and loan amounts. I hope you enjoyed and found this article useful. Good luck!!