Want to refinance your mortgage? Now might be the perfect time to replace your home loan for one that’s better suited to your current situation and needs, since many mortgage experts are predicting that rates are going to stay near historically low numbers. But, before you decide to refinance your mortgage, it may be a good idea to make sure that you have everything you need to be able to replace your existing loan.
Checklist for refinancing your home
When it comes to getting a replacement mortgage, you’ll often need certain paperwork in order for a lender to consider giving you a refinance.
In general, refinancing is reserved for homeowners who have steady income, good credit, and (usually) at least 20% equity in their property. If you don’t have a good credit score, you may want to try to improve it before making an application; as a bad score can often hinder your chances of getting improved and increase your mortgage’s interest rate.
To prove that you’re one of these kinds of homeowners, you’ll often have to provide the required documents to your lender. Often, you’ll need:
- A credit report
- A statement of assets
- Statements of outstanding debts
- Pay stubs
- A tax return, copies of your last W-2 and/or 1099 statements, and tax returns
If you can’t provide all of the necessary documents, you may be able to go for streamline refinancing options instead.
A few things to consider before applying
Before you go and get a replacement home loan, it may be a wise idea to ask yourself these things:
- Can you afford the fees involved with refinancing (such as application fees, title insurance, and closing costs)
- Why do you want to replace your current mortgage (i.e. to reduce your monthly payments, or to shorten or extend your loan term)
- Does it make sense financially to replace your existing loan (consider if the interest rate is lower than your current one, and if you’ll pay more over the duration of your mortgage)
Payoff amounts and penalties
When you refinance your mortgage, your lender will pay off your current mortgage. The refinancing lender will generally request a payoff statement, which will often include:
- Payoff statement fees
- Daily interest charges
- Principal balance of existing loan
- Amount of interest to be paid through the set payoff date
- Escrow shortages (or overages)
Keep in mind that, due to the additional interest charges and other fees, the payoff often comes to a higher amount than the balance that’s owed. Your lender may also charge a prepayment penalty fee too – and they may enact this type of penalty if you pay over 20% of your home loan in the space of a year.
Usually, this type of fee will come to around 80% of six months’ worth of interest, which can often be quite a large sum. Fortunately, you’ll often have the option to get a copy of the payoff statement before you choose to replace your existing loan.
So, while refinancing can often save you cash when it comes to your mortgage, you’ll often have to deal with quite a few other expenses that you may not have had to pay otherwise. Because of this, it’s often best to do research and find out all the information you need to determine whether or not getting a replacement loan is what you want.
Applying for a refinancing loan
Once you’ve got everything you need and are sure that refinancing is right for you, going forward into the application process is often the next step. It may be a wise idea to get in touch with a qualified and reliable lender to get a loan estimate first.
Generally, refinancing your home won’t be too different from when you originally got your mortgage, so in most cases it shouldn’t be too complicated to get a replacement loan.