Refinancing FAQs

Refinancing replaces your existing mortgage with a new one. This is typically done by the borrower to get more favorable loan terms. For example, if interest rates have gone down since you originally got your mortgage, refinancing can help you save money by reducing the amount of interest you’ll pay over the life of the loan.

There are a lot of reasons people turn to refinancing, most of which result in an improved financial outlook. Reasons for refinancing include:

• Taking advantage of lower interest rates to reduce monthly payments and save money
• Altering the term of a mortgage. Shortening a mortgage’s term can help you avoid early-payoff penalties if you are planning to pay off your mortgage sooner than the full term of your current mortgage
• Consolidating debts into one loan which typically has a lower interest rate than other forms of debt
• Converting from an adjustable rate mortgage to a fixed rate mortgage
• Accessing home equity through a cash-out refinance, to pay for large expenses

The process is similar to what you went through when you applied for your original loan. Your income, credit score and the value of your home will be analyzed. The next step is finding out what kind of loan product best suits your needs.

A variety of refinancing loan programs exist. Here are a few examples:

• Conventional home loans
• FHA Streamline Refinance
• FHA 203(k) Refinance
• And more

This is dependent on your situation. Consider how much you can afford to pay up front to refinance your loan, how long you expect to be making payments on the new mortgage, and how long you plan to live in your current home. Other options aside from refinancing exist for people looking to save interest, for example, as some homeowners with long-term mortgages opt to pay points to do so.

If you need to lower your monthly payments, refinancing can accomplish that, but be aware this may mean you spend more money on the loan in total. You can also shorten your loan term, for example, if your financial situation improves thanks to higher income, you can shorten the term of your loan by paying more toward it every month, saving money on interest.

If you need to get cash out, you can access funds through your home’s equity to finance expenses like home repairs.

• W-2s for the past two years
• If you own rental units, rental agreements and tax returns for the past two years
• Your last 2 bank statements, and your most recent statements for retirement accounts, mutual funds or stock accounts
• Settlement agreements or divorce decrees if applicable
• Green Cards, L-1/H-1 visas for non-citizens
• Recent pay stubs and proof of other income
• Your current mortgage note
• Other documentation may be requested.

• Proof of income - provide copies of your pay stubs
• Tax information - provide copies of tax returns for the past two years
• Credit Reports - a credit check will be performed
• Debts - provide documentation of your outstanding balances, such as car loans

Points are interest that you can pay up front. Doing so enables you to get a lower interest rate on both fixed-rate and adjustable-rate mortgages. The points charged to reduce the rate may depend on the type of loan. 1 point = 1% of the loan amount. 

This is dependent on your situation. Consider:

• How much can you afford to pay up front?
• How long do you expect to be making payments on your mortgage?
• What’s the length of the loan, and how long do you plan to be in the home?
• Many people who are looking for long-term mortgages pay points to reduce their monthly payments. Others, who are looking for shorter-length mortgages or who intend to resell their property within 5-7 years may consider not paying points.

Your FICO score tells creditors how likely you are to pay your debts. FICO and the credit reporting bureaus have their own methods of evaluation. But most credit scores are calculated by taking into account factors such as

• Payment history
• Employment history
• How long you’ve had credit
• Credit utilization vs available credit
• Derogatory credit items (collections, charge-offs, etc)

It’s not always easy or quick to raise your credit score, but some things you can do include:

• Paying your bills on time -- avoid late payments
• Reduce your credit balances to improve the ratio of available credit to debt
• Avoid applying for credit frequently
• Establish credit history if you don’t have any

Yes. If you find an error in your credit report you should report it to the credit reporting agency and to the creditor that has erroneously reported something. You may want to consider working with a credit repair specialist to ensure that these errors are corrected.

• Identifying information
• List of debts and accounts
• Bills sent to collection agencies, bankruptcies, suits, etc.
• Inquiries made on your credit in the past two years

Mortgage rates are tied to the basic rules of supply and demand. Factors such as inflation, economic growth, the Fed’s monetary policy, and the state of the bond and housing markets all come into play. Of course, a borrower's financial health will also affect the interest rate they receive, so do your best to keep yours as healthy as possible.

Prequalification determines the loan amount you are likely to receive. But it is not a guarantee of approval, and it’s important to understand this implies no obligation on the part of the lender. Prequalification is obtained through an interview by a licensed loan officer who makes the determination. You’ll be given a letter with this information which you can present if you make an offer on a property.

The pre-approval process is far more thorough. You must submit a formal application, and your credit history and finances will be analyzed. A pre-approval certificate puts you in an even stronger position to close on a home quickly and negotiate with sellers. We highly recommend obtaining pre-approval before you shop for a home.

A rate lock is a lender’s promise to adhere to a specific interest rate/points for an agreed upon period of time until you close on your home. This protects you from unexpected interest rate increases. However, this works the other way, and if interest rates decrease you may not be able to benefit. Rate locks can vary based on loan program, interest rates, and the desired time period.

Yes. Lenders and investors sell pools of mortgages. If a new company buys your mortgage, it assumes all terms and conditions. The new lender can’t change your rate, payments or any other aspect of your agreement. All that changes is who you send your payments to.

You’re still obligated to make payments, and typically a lender going out of business sells all their mortgages to other lenders. The terms and conditions of your loan won’t change.

PMI is Private Mortgage Insurance, which protects a lender from the costs of foreclosure. If you can’t make a down payment of at least 20% you may be obligated by your lender to purchase PMI. By doing so, you can still have access to a mortgage, and the lender is protected in the event that you default on the loan. The larger a down payment you can afford, the lower your PMI cost will be.

Talk to your loan officer before doing so. Moving around a lot of money or suddenly increasing your debt to income ratio could have an adverse effect on your loan approval.

Talk to your loan officer if you think you’re going to have a change in employment. It’s best to have 2 years of steady employment and verifiable income when you apply for a loan.

It’s important to understand what condition a home is in before you buy it. It can also provide leverage in negotiation with sellers, in terms of lowering the purchase price or stipulating services in your contract.