The Mortgage Refinance Process
Before you consider refinancing your home, you need to know how the process works, what you need to know, options available and whether it is something you should pursue.
Step 1: What are your goals?
One of the most important aspects of mortgage refinancing is to determine what your goals and objectives are. Are you trying to reduce your monthly payments or are you interested in getting a buy-to-let home? Whatever your goals are, do your research online to search for the various loan programs available to decide which option will help you achieve those objectives.
Step 2: Contact a mortgage lender
Once you have defined your goals and researched all the loan options available, you can submit your information to a mortgage lender who can answer any questions you have about how to refinance or how to accomplish your defined goals.
Step 3: Select your loan program
If you decide you’ll like to move forward with refinancing, your mortgage lender will confirm the program, rate and payment. You can lock in your interest rate to protect you against flunctuations in the market. Once your rate is locked, you should receive a lock agreement confirming the terms of your loan and your lender may collect a fee to finalize the lock.
Step 4: Document Submission
Once the lender receives the signed lock agreeent and deposit, your banker will provide you a list of items so that the lender an verify all your information to get your loan approved and closed. The lender will also send you some disclosures such as the good faith estimate and truth-in-lending disclosure to review and sign which details the terms of your rate and loan.
Step 5: Appraisal Inspection
In a few days, you’ll be contacted by the lender to schedule the appraisal inspection. You need to schedule the appraisal as quickly as possible to prevent any delays in your closing.
Step 6: Document submission
Once the lender has received your documents, the next steps include opening escrow, ordering the preliminary title report and coordinate with other parties to sure your loan progresses smoothly. Once the lender has everything required, your loan file would be submitted to the underwriter for revew and approval.
When you refinance your mortgage, it may be possible to end up with some cash in your pocket — that’s why it is called cash-out refinancing.
You can only drag cash out if you have built up a fair amount of equity in your home. Cash-out refinancing was very popular in the days of soaring home prices.
Unfortunately, a great many homeowners used the cash for frivolous reasons — fancy vacations, luxury items, expensive cars, etc. Cash-out refinancing became a trap when housing values took a dive.
Homeowners were left with the higher cash out mortgage balance — their house was worth less or even “underwater” — and the cash was long gone.
People may be tempted to pay off large credit card balances with the cash from refinancing. This also can become a dangerous trap.
Unless the underlying reason is resolved as to why you ran up the credit cards in the first place, the odds say that you will be charging big time again.
Credit card balances can usually be negotiated downward with the credit card company or even eliminated by filing bankruptcy.
Cash-out refinancing may have some merit if the cash is used for a good cause –such as college tuition payments, needed home improvements, or medical bills.
But it is always best to find some other way to pay these expenses instead of increasing your mortgage and putting the roof over your head in greater risk.
The simplest but most overlooked way to pay for needed expenses is to cut down on the expenses you don’t need.
- You know what I mean:
- Out of sight cable/satellite bills.
- Thru the roof cell phone bills.
- Constantly eating out at restaurants.
- Always buying a new car — usually cheaper to fix your old one.
- Fees for a health club that you don’t use.
- And a million other unnecessary drains on your money.
You definitely don’t want to make taxable withdrawals from your 401k or IRA — the taxes and penalties could easily exceed 35% of your withdrawal.
A home equity loan may be a better way to put cash in your pocket instead of a cash-out home loan refinance — especially when the interest rate on your new refinanced mortgage is…