The steps detailed here are merely an overview of the refinance process. The actual process is much more detailed and involves many variables. We HIGHLY recommend that you put your trust into our expertise when it comes to your loan eligibility.
Learn the 7 Steps:
First, you need to be clear about the purpose of the refinance. Ultimately the goal is to improve your current mortgage situation. However, because there is a cost to doing a refinance, you must be clear about your goals.
So what are you looking to achieve? Here are some reasons to refinance your current mortgage:
Lower interest rate
Lower monthly payment
Consolidate other debt and/or Cash-out
Switch from an ARM or Balloon into a Fixed term loan
Add or remove borrowers on the loan (buy-outs and estate)
Next, you have to calculate your Loan-to-Value (LTV) ratio. In today's market your property's value is a common issue.
To calculate the LTV:
You need to know what your property is worth. You can get a good guesstimate by going to www.zillow.com or by contacting a local appraiser for a value estimate based on comparable sales in your area.
You need to calculate the new loan amount. Use this formula:
MTG loan balance + one month's MTG payment (1st deferred payment added back) + debt payoff amount(s) (if consolidating: like credit card balances, auto loan, 2nd MTG, etc.,) + cash-out amount (if pulling cash from equity) + 2.5% to 3% closing costs.
You need to take the number in calculation (B) and divide it by the property value in (A) (B/A = LTV).
For rate reduction streamlines, this step is not required because no appraisal is required.
You need to add up all your minimum monthly debt payments, including your "new" mortgage payment -- for you and the co-borrower (if there is one). The new mortgage payment is based on the new loan amount, new rate, and new term, and must include your escrows (taxes, insurance, MI, and HOA fees if any).
You need to calculate your total monthly income -- for you and the co-borrower (if there is one).
You need to take the number in calculation (B) and divide it by the total monthly debt in (A) (B/A = DTI).
For rate reduction streamlines, this step is not required because no liabilities (other than the existing mortgage) are required to be shown and there is no income verification.
Once you have figured your LTV and DTI, you will need to know your credit scores. You can either get a free credit report from an online credit service or we could assist you with getting a tri-merge report. We will need to have a credit report pulled in our company's name to be able to use it.
Minimum mid-score requirement is 620, however certain situations allow for a lower mid-score. Please contact us for a detailed credit review.
At this point, you will have a basic understanding of whether this refinance could be done. You need to decide what loan program and terms are best suited for your situation. The best question you need to ask yourself is: "How long will I (or we) stay in this home?" The answer determines your program.
We will need to collect some income document from you. And, order services: appraisal, title work, and other services. For rate reduction streamlines, appraisal and income docs are not required.
Once all the paperwork is processed, a settlement date is scheduled. At settlement you will need to sign all the paperwork and you will not have to make a mortgage payment until your second month. Your first month’s mortgage payment is deferred until you either sell or refinance your home again. You will have 3 days to review your paperwork and loan will fund on the 4th day.
What documentation will I need?
W2's for the past 2 years
Personal tax returns for the past 2 years, current income statement & balance sheet for business (self-employed only)
Current pay stubs for the past month
Bank statements for last 2 months for each active account with sufficient reserves (all pages)
Latest retirement statement for each active account (all pages)
Residence addresses for past 2 years (if you own your home for less than 2 years)
Addresses and loan information of other real estate owned (if any)
Clear copy of Driver’s License
Clear copy of SS card
Certificate of Eligibility and DD214, (veterans only)
How much money do I need?
Most costs are financed into the new loan. However, the appraisal fee of $350 to $450 will need to be paid directly to the appraiser or to the lender (depending on the loan program) prior to the time of inspection. For rate reduction streamlines, there are no appraisal fees. There is also a credit report fee of $9.34 per borrower that must be paid to order the credit report.
Although each situation is somewhat different, there may be a small amount that needs to be paid at closing.
