Documents for Smooth Processing of Home Loan Refinance

Refinancing your mortgage is a common way to reduce the interest rate of your existing mortgage. This process can also lower your monthly payment and lets you choose a different repayment term that aligns with your long-term plans.

When refinancing your home, preparing for the process can help it go smoothly. Refinancing may take up to 53 days, or around 7 weeks on average, but the process can take much longer without the correct paperwork. Having your refinance documents ready for your lender can help your refinance go as smoothly and quickly as possible.

Learn what documents you need to refinance your home and how T&I Credit Union’s streamlined process can approve your new loan quickly.

Why Refinance Your Mortgage?

Refinancing your mortgage can be a smart financial decision. Mortgage refinance is the process of applying for a new home loan to pay off your original mortgage. The new loan will have a different rate and terms, which can help you pay off your mortgage faster and spend less on interest.

The most beneficial reason to refinance is to lower your current interest rate. Taking out a new mortgage with a lower rate reduces the total cost of interest you’ll pay over the life of the mortgage on the original loan amount.

You may refinance an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM) for better terms. You might also leverage your home equity with a cash-out refinance to raise funds for home improvement, medical bills, or college tuition.

T&I Credit Union currently offers mortgage refinance loans of $25,000 or more at the low interest rate of 5.25%. When you apply with T&I Credit Union, there is no application fee, no escrow, and closing costs are only $525. For a limited time, qualified applicants can choose their terms for a refinanced mortgage loan.

Documents to Gather for the Refinance Process

Applying for a rate and term refinance requires the same paperwork needed for your original home loan. Gathering the necessary papers, like proof of income and insurance, can expedite the process and help it go smoothly.

As you prepare to apply for a refinance loan, collect the following documents into an easily accessible file to share with your loan officer:

Proof of Income

To refinance your mortgage, you must have proof of income. Your lender will assess your income to determine if you can pay your mortgage, other debts, and living expenses. Depending on the nature of your employment, you may need to provide W-2s, 1099s, or other forms of income proof like bank statements.

W-2s or 1099s

Employees who are paid hourly or on salary will receive pay stubs that show wages and tax payments. The most common proof of income documentation is the W-2, which details your tax contributions and salary. You’ll typically need to provide your W-2s from the past one to two years.

To ensure you have sufficient proof of income, gather and submit the following documents to your lender:

Pay stub from the past month
Recent bank statements
Employer contact information for verification

If you work as a freelancer or in a contracted capacity and don’t receive a W-2, you’ll need your 1099 forms. These forms are similar to a W-2 and show the amount each client paid you for that tax year. Depending on the nature of your work, you may need to produce invoices, bank statements, or profit-to-loss statements for proof of income.

If you’re an employee of a business but also generate side income, you may need a 1099 form in addition to your W-2.

Letters of Explanation for Gaps in Employment

For many lenders, employment gaps are a red flag. Consistent employment shows lenders that you’ll be able to make timely payments. Gaps in your employment history represent periods without income, meaning you may be unable to pay your mortgage.

If there are gaps in your employment history, write a letter explaining these periods to the lender. For example, if you traveled abroad, raised children, or cared for a dependent family member, draft a concise letter that shares the reason for your employment gap. Include dates, a brief explanation of why you did not work, and how you met your financial obligations during that time.

Tax Returns

Your tax returns provide the lender with additional information regarding your financial situation and how much you can pay on a mortgage. Typically, you’ll need to provide the past two year’s tax returns to your mortgage lender, including your Form 1040 and accompanying documents.

Many lenders now accept digital copies of refinance documents. If you have a paper tax return, scan it and create a digital file to send to your lender. For electronic returns, save your tax documents in an accessible location on your device so you can easily send them to your lender when requested.

Credit Report

Lenders review your credit report, including your credit history and score, to determine your refinance mortgage loan terms. Most financial institutions require a credit score of between 620 and 720 to refinance a mortgage, so before you apply, review your credit for errors and address them before applying to refinance your home. Mistakes include inaccurate personal information, account reporting mistakes, and incorrect accounts.

To obtain a copy of your credit report, visit AnnualCreditReport.com. You can view and download a copy of your report from one of the three main credit reporting agencies, Equifax, TransUnion, and Experian. Typically you get one free report per year; however, you can access one free report per week until December 2023 due to a Covid-19 allowance.

Statement of Assets

A statement of assets is a document that details your account balances, property, and any other capital that may be used to pay off your mortgage. The lender will use these documents to determine if you’ll be able to cover the closing costs of the refinanced mortgage and if you have enough collateral for your payments in case of an emergency.

Your statement of assets should include the following:

Most recent monthly statement for your checking and savings accounts
Most recent statement for any open retirement accounts, such as a 401k
Investment statements for brokerage accounts, stocks, bonds, or mutual funds
Statements reflecting any certificates of deposit (CDs) in your portfolio
Statements reflecting the value of any open life insurance policies

Statement of Debts

When considering your new mortgage, your lender will use your statement of debts and your statement of assets, income information, and tax returns to calculate a debt-to-income ratio.

Your statement of debts contains information about each of your current financial obligations. For most borrowers, you will need to include:

Most recent mortgage statement for the property you are trying to refinance
Mortgage statements for any other properties you own
Most recent billing statement for any outstanding home equity loans
Most recent billing statement for any outstanding lines of credit
Most recent billing statement for all debts listed on your credit report, including car payments, credit cards, student loans, and personal loans

Insurance Information

Lenders require proof that your home is covered under a homeowners’ insurance policy. You will also need to show that you have active title insurance for the home. You’ll need to provide documentation that you have these policies to be eligible to refinance your mortgage.

Gather and submit the following insurance information to your lender when applying for your new home loan:

Current homeowners insurance declaration page
Your insurance agent’s contact information, including name and phone number
Recent appraisal and updated coverage limits, if applicable
Title insurance policy documents (typically found in your original closing documents)
Copy of the recorded deed that shows you are the legal owner

Post-Refinance Documentation

Once the refinance review is complete and you’re approved for the new mortgage, you’ll receive many important documents during the closing process. Depending on your state and municipality, additional government-mandated documents may be issued at closure. It is vital to retain the following documents in a safe location for future reference:

Closing Disclosure

The closing disclosure will detail the closing costs and terms of your mortgage. The lender will send this information to you three days before your closing.

Loan Estimate

Your loan estimate will provide in-depth information and terms regarding your loan. It will be issued three days after the lender’s receipt of your refinancing application.

Notice of the Right to Rescind

The Notice of the Right to Rescind document informs you of your rights to cancel your loan. This document will usually have cancelation forms attached, which you would use if you decide to cancel your refinancing. You’ll only have a short time after closing to cancel, so review this form immediately after you receive it.

Initial Escrow Statement

The initial escrow statement will detail the expected taxes, fees, and insurance premiums you’ll have to pay in the year after closing.

Promissory Note

Your promissory note will provide the exact terms of the contract you’re entering, including the amount owed, interest rate, payment dates, total repayment amount, loan term, where to send payments, and conditions that will affect the repayment.

Mortgage Instrument

The mortgage instrument, also called a security instrument, will inform you of your rights and duties. It also describes the conditions and processes for foreclosure.

Refinance Your Home Loan with T&I Credit Union

If you’re considering refinancing your mortgage, T&I Credit Union offers competitive interest rates with low closing costs. Big banks typically offer high interest rates and are selective in their approval process, while smaller institutions like T&I Credit Union can offer more attractive terms and top-notch customer service.

Home Loan Refinance: Documents for Smooth Processing