There are several reasons to refinance an existing mortgage- lower interest rate, lower monthly payments, or to draw the equity out of the home. Whatever the reasons refinance is an excellent way to utilize your greatest investment- your home.
Refinancing is a process and there are several avenues available to the homeowner to refinance based on different aspects- the type of loan of the existing mortgage, and the reason for the refinance. Generally the steps involved in refinancing are almost the same with a couple of exceptions and they are if the refinance is an FHA Streamline loan or an FHA Streamline 203 (k) loan. These two types of loans differ somewhat from the conventional refinance loan. Here is the breakdown on the types of refinancing loans.
FHA Streamline- This type of loan can only be done if the homeowner already has an existing FHA loan
1. Must have an existing FHA mortgage
2. Must be current on payments
3. Must have owned property for a minimum of 6 months
4. Lender must be FHA approved
5. No appraisal required but the new loan cannot exceed the current loan
FHA Streamline 203 (k)- Used for small home improvements
1. Minimum loan amount if $5,000 not to exceed $35,000 only for minor home improvments.
2. A minimum of one licensed contractor must be used. The homeowner cannot do the work themselves
3. Homeowner must obtain all permits before work is begun
4. The 203 (k) loan cannot be used for any major structural repairs such as a new roof or fixing a cracked foundation.
5. If the job exceeds $15,000 a third party inspection must be conpleted after the work is finished
6. The loan must be closed out when the job is done
Conventional Loan
1. Gather financial information- Due diligence is very important when refinancing and the most important part of the process is providing the lender with the proper documents and they are: Current mortgage statements (usually the last 2 or 3 months or in some instances lenders may want copies going back a full year), Last 3 months pay stubs from work, Banking statements for the past 2 or 3 months. Again depending on the lender they may want a full year of statments), any outstanding debt, and Federal and State taxes for the last 2 years.
2. Try to get copies of your latest credit reports and credit scores. For a small fee you can get these online from the three credit reporting agencies- Transunion, Equifax, and Experian. This is important for you to know where you stand before going ahead in the process. If your credit score is too low, you may wish to wait to refinance till your score improves.
3. Find a reputable lender. Your existing lender, banks, or financial institutions making home loans are excellent sources.
4. Lender will pull your credit and order an appraisal of the home. Also they will verify all financial and employment information.
5. All fees called closing costs will be explained involving the refinance- origination fees, title search, and appraisal fees. These closing costs can be rolled over into the new loan if there is enough equity in the home to cover the costs.
6. The lender puts the refinance package together then sends it to the underwriters. The underwriters are responsible for seeing that the loan is complete and meets the requirements specified in refinancing for this type of loan. They will either approve the loan as is, or ask for additional documents, or disapprove the loan.
7. Once the loan passes the underwriters it is scheduled for a closing date. At closing papers are signed and checks exchanged. The refinance is complete.
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