How to Refinance

Many homeowners buy a home and never really understand how to refinance their home loan.  What does refinance mean?  I get asked a lot of refinance questions that make me believe that most homeowners think a refinance is like a loan modification.  There is a major difference.  When you refinance your mortgage you are paying off your current loan with a NEW LOAN.  You have to qualify all over again, most loans require an appraisal and your term starts all over again at 30 years or whatever new term you select.

I have written another post on “Should You Refinance” so I am not going into that today.  Today we are focussing on HOW to refinance your mortgage.

Step number 1 is to contact a local loan officer you trust.  If you didn’t like the loan officer that helped you buy the home you can always go back to your real estate agent and ask for a fresh referral.  Loan officers strive to keep real estate agents and their clients happy because they get repeat business from them.  The easiest thing to do, of course, is simply call me at 980-721-7478!  (sorry but I had to throw that in there 🙂

Step number 2 is to make application and get an appraisal ordered asap.  You need to understand that no lender can really tell you options with any certainty without knowing the current value of your home.  VALUE is king right now… if your home is in a good area (good sales volume) then your value might be fine.  The way appraisers determine your value is by comparing your house with other homes that have recently sold.  Basically, your house can’t be worth $200,ooo if another house just like your sold for $150,000 a week a ago and on the same street!  What if that sale was an anomoly, maybe a foreclosure or a distressed sale… that is why appraisers use multiple comps.  Typically I am seeing 4-6 comps used these days and sometimes mortgage underwriters will even ask for more!

Step number 3 is to compare options!  Once value is determined the loan officer can show you exactly what options you have.  Here at Fairway, we believe in going the extra mile to educate and inform our clients.  That’s why we offer a TOTAL COST ANALYSIS that will show you the true total cost of one loan option vs another and will even include prepayment options vs investment scenarios!  You can see the benefit of taking the higher payment to pay the house off early vs taking a lower payment and investing the difference… 95% of loan officers will NOT SHOW YOU THAT!

Step number 4 is hustle!  You need to work hard to comply with everything you lender asks of you because the clock is ticking.  Refinances are always given 2nd priority by mortgage companies. Purchase loans come first becuase if you don’t close on a refinance you still have a place to live!  Purchase loans are always priority one with all mortgage companies (or at least should be) so you want to make sure to get your refinance processed quickly.  Delays can cost you money if your interest rate lock expires and rates go up!

So now you knoe the basics about how to refinance your home loan.  I will be writing some more posts that will be product specific, like “How to refinance your FHA loan”, etc…

As always you can call me directly with any questions or shoot me a quick email.  I am always happy to help!

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