If you are considering refinancing your home, you may wonder how long the process takes and what it entails. Understanding the home refinancing process, the average timeline, and knowing what to expect can make refinancing your home less stressful.
When is the Right Time to Refinance Your Home?
Your decision to refinance your home depends on your current financial situation, current rates, and refinance goal. A mortgage refinance can cost between 2-6% of the loan’s principal for eligible borrowers.
Refinancing requires an appraisal, application fees, credit report fee, settlement fee, loan origination fee, mortgage points, and a title search. Ensure you consider the closing fees in your budget and understand how much the mortgage company expects you to bring in a check at closing, so you aren’t surprised by unexpected upfront costs.
Before refinancing, you should determine your breakeven period. If your refinancing fee costs $4,000 and you save $200 a month, you divide $4,000 by $200, which means it will take you 20 months to break even. However, if you increase your loan term when you refinance, it will take you much longer to see the savings.
If you aren’t planning to remain in your home, refinancing may not be the best financial decision because you won’t be able to recoup the refinance closing costs to make the process worthwhile.
You can use a free online mortgage refinance calculator to help you get a loan estimate based on your loan type and term and to help determine if refinancing is right for you.
However, there are several great reasons to consider refinancing your mortgage that help secure your financial future and make the most of your hard-earned money.
Lower Interest Rates and Better Credit Score
Perhaps current mortgage rates are lower than your current home loan, or you improved your credit score since you took out your original loan, and you want to reduce your monthly payments?
A lower interest rate can save money on your monthly budget and help you build equity in your home faster because you repay more of the principal sooner.
If you are close to retiring or want to be mortgage-free, you may want to pay off your home sooner and reduce the mortgage loan term from a 30-year loan to a 15-year loan. At a lower interest rate, this may only reduce your mortgage payment slightly or not at all, but you will pay off the mortgage in half the time.
Changing the Type of Loan
Staying in your home for only a few years makes switching from a fixed-rate loan to an adjustable-rate loan (ARM) a beneficial financial strategy. Conversely, switching from an adjustable-rate mortgage to a fixed-rate mortgage eliminates concerns over future interest rate hikes and provides a stable payment and more financial security over the long term.
Taking a Cash-Out Refinance Loan
Sometimes homeowners tap into the equity in their home to fund their child’s college education, celebrate a milestone event, or remodel their home. A cash-out refinance may mean you are assessed at a higher interest on the new mortgage than a rate-and-term refinance.
If this is the case, consider a home equity line of credit or home improvement loan option from T&I Credit Union, which saves you money on closing costs, doesn’t extend the life of your mortgage, and gives you the cash flow you need.
How Long Does it Take to Refinance a Home?
When you refinance a house, you replace your current loan with a new one. Your interest rate, term length, and monthly payment may change depending on what you hope to achieve when refinancing your mortgage.
The time it takes to refinance your mortgage can be impacted by the size of your property, how complicated your finances are, and services performed by third parties like appraisers and inspectors. The entire process should take 30-45 days for the average closing.
How to Speed Up the Timeline
If you need to expedite the refinancing process, there are some steps you can take. Establishing your financial goals is an important first step. Do you want to lower your interest rate, shorten your term, eliminate private mortgage insurance or convert your existing equity to cash?
Your goals may impact whether you qualify for a new loan. To improve your chances of qualifying, look at the following:
Check Your Credit Score
To refinance your home, credit score requirements include a FICO score of at least 620 for a conventional loan. Check your credit score and see how you can improve it before refinancing.
The interest rate you are offered may depend on credit score standards. An excellent credit score means a lower interest rate, and an average credit score may result in a higher interest rate, meaning you pay more over the life of the loan.
Assess Your Home Equity
If you are considering taking a cash-out refinance, having enough equity in your home is essential. Typically you can only refinance 80-90% of the equity in your home, so having enough equity is necessary to make the transaction worthwhile.
Review Your Debt-to-Income Ratio
Lenders like to see a borrower with a debt-to-income ratio of 45% or less for conventional loans. This means that the percentage of income used to pay your monthly bills must be 45% or less of your monthly gross income.
Try to lower or eliminate debts like balances on credit cards and other high-interest debt before refinancing to improve your chances of qualifying for the lowest possible interest rate.
Prepare Your Documents
Just as you did for your original mortgage loan in the homebuying process, you will have to submit documentation to the mortgage lender’s underwriter to prove you qualify for refinancing as part of the underwriting process. These documents can include recent pay stubs, W2 or 1099s, recent bank statements, and recent tax returns.
Why Getting Organized Matters
Once you decide to refinance your home and have found the right lender, lock in your rate. Rate locks typically last for 15 to 60 days, but the period of time can be extended if you pay a fee. Having your paperwork organized, responding quickly to requests for additional paperwork, and being available for appraisals and house inspections can ensure you meet the deadline.
T&I Credit Union Helps You Achieve Your Financial Goals
As a member-owned financial institution, we can save you thousands of dollars over the life of your mortgage by offering you interest rates below the industry rates from a private bank or online lender.
At T&I Credit Union, we can help you improve or maintain your credit score, so you are ready to apply for mortgage refinancing or another loan with us as quickly and easily as possible. We can also track your loan and other debts and check your net worth on our money manager, so you know exactly where you stand financially at all times.
With current interest rates trending higher, now is a great time to lock in a fixed-rate loan and payment security if you have an ARM and safeguard your financial future. If you are ready to refinance your home, submit your online application to begin loan processing with T&I Credit Union today.
For more information, contact us to talk with a loan officer and learn how we can help you refinance your home, pay for home improvements and unexpected emergencies, or even plan a special vacation or a wedding.