Welcome back everyone to part 3 of our mini blog series “The In’s and Out’s of Refinancing”. In part 2 We went over the different types of refinance mortgage loans and part 1 was all about the basics of refinancing. In today’s blog, we will finish up this series with how much it costs to refinance and just how you can go about preparing to refinance!

How Much Is It?

The first step to refinancing your home is to find out just how much it is going to cost you! Normally, a mortgage refinance can cost anywhere from 2-6% depending on the loan’s principal. Let’s say you have a loan for $180,000 and you are looking to refinance. When preparing for the closing cost, you may be looking at anything from $3600 to $10,800. If you decide that you want to roll these costs into your refinanced loan, be aware that it may increase your monthly payments.

Step 1: Preparing to Refinance

Before you jump into refinancing, there are a few things that we need to do before you are ready for that new loan. Frist, you will want to get your credit in order. Your credit score will have an impact on how your interest rates are provided by a lender. The next step is to make sure you have current copies of your paystubs and verification of your current position so that the lender can review your employment history. The third step is to check the balance on your home equity. Be aware that you will save on PMI if the amount of your refinanced loan is less than 80% of your home’s value. Finally, your home condition can play a big part in the process as lenders may require an appraisal. Be sure to complete any home improvements, project or repairs before acting on the appraisal.

Step 2: Calculate Your Target Refinance Interest Rate

When you are looking to refinance, be sure to keep an eye on recent rate trends! That way you will know when rates are low enough for you to act on the refinance loan and can keep your payments as low as possible. Also be sure to utilize a mortgage refinance calculator to help determine just how much you could save with the refinance. Be prepared to know your current loan amount, term and origin year and your loans interest rate.

Step 3: Shop and Apply for Refinance Loans

You can contact multiple lenders and inquire about the different rates and fees a refinance would present with their company and find out if you meet their qualification criteria. Lenders can provide you a loan estimate that will outline the terms of the loan, how much you could be paying, and a summary of the loan’s costs and fees. Be sure to request these quotes withing a similar time period to meet the “right to shop” period and keep from stacking up multiple hard inquiries. Finally, you will need to make sure you have the necessary application documents:

Lending Fees

Property Taxes

Origination Fees

Credit Fees

Insurance Fees.

Step 4: Lock in the Refinance Interest Rate

After shopping around and choosing a lender, you will be presented with the opportunity to lock in your interest rate. If you are locked into that interest rate, the lender will agree to a specific interest rate and complete any remaining application review steps. The good news is, if the interest rates increase, you’re already locked in at a set rate! If the rates decrease on the other hand, there is an opportunity for your locked-in rate to lower to meet those lower rates.

Step 5: Complete A Home Appraisal

If the lender requires an appraisal, be prepared to spend anywhere from 3-6 hundred dollars on it depending on where you live. At that point, the appraiser will inspect and analyze the interior and exterior of your home and take photographs of everything. After the appraiser does their walkthrough, they will compare what they have seen to similar homes recently sold.

Step 6:

Finally, the last step is to pay the closing costs and sign off on your new loan documents. At that point, the lender will settle the previous mortgage and become the new lender you will be making mortgage payments to. The rest of the signing process will continue and could take a few hours.

So there you have it! Hopefully with these tools and information you will be able to more easily acquire a refinance on your mortgage loan and hopefully save some cash in the long run! Thank you for taking part in this 3 part mini series! Keep an eye out Tuesday for a new series.