Borrowers often have anxiety about refinancing and going through the taxing journey of gathering their personal financial documentation. The good news about refinancing is it is very similar to the original loan process. So, if you are already a homeowner, you likely have been through the mortgage lending process already and are well apt to handle a refinance.
Here is a general outline of what to expect when refinancing:
1. Loan Application – Applying For The Refinance
The first step in the refinancing process is to apply for one. The mortgage lender will ask for the same information given upon buying the home. This includes documentation such as tax returns, W-2’s, bank statements, and paystubs to determine loan eligibility. If the borrower is self-employed, more documentation may be required.
Each borrower’s situation is unique and your Loan Officer can help guide you through the required documents for your specific application.
2. Locking a Rate
Upon approval, the lender may give the borrower the option to lock in an interest rate. This guarantees that the rate won’t change before the loan closes. Generally, rate locks last between 21 – 30 days.
Another option is to float the rate. In other words, not locking at the beginning of the loan process and waiting for a lower rate until closing. During high market volatility, this can be a gamble as the rate could also increase during the purchase or refinance process. It is important to trust the advice of your mortgage lender to determine the ideal time to lock the interest rate for the new loan.
Once the application is signed and submitted, the lender will begin the underwriting process. This includes the verification of the borrower’s financial information and the accuracy of all documents submitted regarding the details of the home. From the time the loan application is completed and all of the documents are gathered by the borrower and provided to the lender, it typically takes 2-3 business days for the lender to complete the loan underwriting process.
After underwriting reviews the initial submission, they will issue a conditional approval, suspend the loan or issue a denial. Your Loan Officer will review this initial response and help you navigate what is needed to satisfy underwriting’s request. Be prepared to provide additional information at this point.
An important part of the underwriting process is the appraisal, which determines the home’s value. The value of the home plays an important role in determining the borrower’s eligibility for certain loan options and can influence the interest rate. In the case of a purchase, the appraisal can affect the amount of down payment that is required and for cash-out refinances, it can determine how much money a borrower can pull out of the equity in their home.
The lender will order the appraisal, the appraiser will then coordinate an appointment with the borrower to inspect their property, and then the appraiser will provide a full report outlining the home’s value.
In order to get the best estimate, it is important to make sure the house looks its best. This may mean tidying up or making minor repairs. It is also in the borrower’s best interest to provide the appraiser with a list of all upgrades made to the home since the initial purchase. The goal is to make it easy for the appraiser to provide a strong value. (No, you do not need to worry about the appraiser liking the way you decorated your home.)
By definition, an appraisal report is an independent opinion of value produced by the appraiser. While it provides a good benchmark, it is not necessarily a be-all end-all representation of what a property is actually worth or what it would sell for on the open market.
Not all files require an appraisal, however. Some files can get an appraisal waiver. An appraisal waiver means that when the loan was being underwritten, it was algorithmically determined that there was satisfactory equity to determine that there is no need for an appraisal, which saves the time and the expense of needing an appraisal inspection.
The mortgage lender has no influence on which property qualifies for an appraisal waiver, but will notify the borrower immediately if they do qualify.
Once underwriting and the home appraisal are complete, it’s time to close on the loan. A few days prior, the lender will send the borrower a Closing Disclosure document which outlines all of the final closing costs, payoffs, and loan terms of the loan for review by the borrower. This is essentially the final opportunity for a borrower to address any questions or concerns that they may have about the loan closing. The borrower will be asked to sign a copy of the Closing Disclosure to confirm that they received it. There is then a three day hold period from the time the Closing Disclosure is signed to the time that a borrower can sign final loan documents.
The mortgage lender will then proceed to put the loan into final audit where underwriting will review the loan a final time before issuing a clear-to-close. Once the clear-to-close is issued, the mortgage lender will generate the final loan documents and send them to the escrow officer who will coordinate a notary for the borrower to sign the final loan documents in person. (Some states allow virtual closings with notaries but as of right now, in California, the final loan documents have to be signed and notarized in person.)
If a borrower is refinancing their primary residence, they have an additional three day right of rescission after they sign the final loan documents. This is effectively a cooling off period that gives the borrower an opportunity to cancel the refinance if they no longer want to move forward with it. The loan will fund, record, and disburse once three business days have passed after the loan signing. Investment properties and second homes do not have a three day right of rescission, which means that the loan can fund, record, and close the loan immediately after the borrower has signed their closing loan documents.
If you are considering a refinance and have some questions regarding your home or current market rates, give us a call at (760) 930-0569 and one of our loan officers will assist you.