Refinancing a house can be a tricky process, as it involves several steps and situations that are out of your control. Typically, it takes 30 to 45 days to complete. But with historically low interest rates and the pandemic, it can take as long as 60 days. To understand the refinancing process, let’s take a look at each step.
How Long Does a Refinancing Take in 2021?
According to mortgage tech firm Ellie Mae, the average refinancing took about 57 days. Given the historically low interest rates, refinancing your home in 2021 could take up to 60 days.
Refinancing Timeline: Home Refinance Process Made Simple
Step 1: Set a Goal
First, ask yourself why you want to refinance your home. Do you want to reduce your monthly payment? Pay off your loan faster? Tap into equity? Set a clear goal for why you want to go through this process.
Let’s take a look at some of the possible reasons why you want to refinance your home:
Reduce your monthly payment – You can refinance into a loan with a lower interest rate, or you can extend the loan term. The latter option means you’ll eventually pay more in interest in the long run.
Pay off the loan faster – If you refinance your mortgage from a 30-year loan to a 15-year loan, your monthly payments will go up. However, you’ll pay less interest in the long run.
Tap into equity – When you refinance to borrow more than you owe on your current loan, the lender gives you a check for the difference. This is known as a cash-out refinance. Homeowners may choose this option to pay for repairs on their home or to pay off debt.
Switch from an adjustable- to a fixed-rate mortgage – Talk to your lender about the pros and cons of choosing a fixed-rate mortgage or an adjustable-rate mortgage. You may want to switch to a fixed-rate mortgage so you can make steady, predictable payments over the life of the loan.
Get rid of FHA mortgage insurance – In many cases, the Federal Housing Association mortgage insurance premium you pay on FHA loans cannot be canceled. The only way to eliminate FHA mortgage insurance premiums is to sell the home or to refinance the loan once you’ve accumulated enough equity.
Step 2: Find the Best Refinance Rate
The only way to do this is to research more than one lender to compare rates. Don’t be fooled by the lowest quote; some of these may include discount points where you pay the lender upfront in order to get a lower interest rate.
According to Freddie Mac, you can save an average of about $3,000 over the life of a loan when you get five quotes.
Step 3: Apply for a Mortgage
Submit a mortgage refinance application with three to five lenders. Submit the applications within a two-week period to minimize the effect on your credit score.
Remember: When you apply for a refinance loan, lenders will do what’s called a hard inquiry on your credit report. This may temporarily lower your credit score. However, the money you save in the long run from refinancing is well worth the slight hit to your credit score, and your score will likely improve after a strong history of regular loan payments.
Step 4: Choose a Lender
In order to find the right lender, you’ll need to do some research. Here are some things that can help you find the right lender:
Get prequalified – A pre-qualification can help you start the refinancing process. The lender will review your finances, including your income, debt, savings and assets. The prequalification letter will state your estimated interest rate, your loan term and estimated monthly payments.
Get your credit score in shape – Lenders are more likely to approve your bid if you have good credit. If your credit score is low, then it could be risky to loan you money. If you have a credit score under 580, you’ll likely have trouble getting approved for a loan. To improve your score, try paying off high-interest credit cards and any recurring loans before applying for a refinance.
Research the common types of home lenders – mortgage bankers, mortgage bankers, direct lenders and portfolio lenders, to name a few
Step 5: Lock Your Interest Rate
A mortgage rate lock, also known as rate protection, keeps your interest rate from rising between the time you apply for a refinance and the time you close on a new loan.
Most rate locks have a period of 15 to 60 days, but the exact period varies depending on the type of loan you have, where you live and the lender you choose.
The downside of a mortgage rate lock is that it may be expensive to extend the lock period if your transaction needs more time. A locked rate may also lock you out of a lower interest rate if the market rate falls after you’ve locked yours in. Since the rates can change daily or even hourly, this is something to take into consideration when choosing your rate protection.
Step 6: Close the Loan
Closing your refinance loan is pretty similar to closing the initial loan you made when you bought your home. This time, though, you won’t be working with a real estate agent or a seller.
What to Bring to the Closing:
- A government-issued ID or passport
- A cashier’s check to cover the closing cost (if applicable)
- Your closing disclosure statement
- A list of key contacts, like your attorney or agent, in case of any follow-up questions
If you are getting a cash-out refinance, you won’t receive the funds until three to five days after closing. The Truth in Lending Act requires lenders to give you three business days after the closing to cancel the refinance.
Your lender will provide you with a closing disclosure that breaks down what you owe at closing, plus the details of the loan. Then you have three business days to back out of the loan, but keep in mind that you will still have to pay for services like the appraisal and credit report.
What You Need to Know About Refinancing
Mortgage refinances come in three varieties: rate-and-term, cash-in and cash-out. The right option for you depends on your goals. The rates vary for each type as well.
Rate-and-Term Refinance
This lets homeowners change their current loan’s rate, term or both. The goal is to save money. For example, the homeowner may change the rate and term from a 30-year fixed-rate loan with a 5% interest rate to a 15-year fixed-rate loan with a 3% interest rate, or a 30-year fixed-rate loan to a 15-year fixed-rate loan, or even a 30-year fixed-rate loan with 5% interest rate to a new mortgage with a 30-year term at 3% interest.
Cash-Out Refinance
The goal of a cash-out refinance is to tap into your home equity, the portion of your home that you own. To access it, you have to take a loan out against the value of your home. When you do a cash-out refinance, the new loan balance is bigger than what you currently owe. The new loan is used to pay off your existing loan, and you “cash out” the rest.
Cash-In Refinance
Alternatively, in a cash-in refinance, the homeowner brings money to the closing to pay down the loan balance to lower the amount owed to the bank. This may result in either a lower mortgage rate, a shorter loan term or both.
One common reason why homeowners choose a cash-in refinance is to get a lower interest rate that is only available at lower loan-to-value (LTV) interest rates.
Another reason is to cancel mortgage insurance premium payments. When you pay your conventional loan down to 80% or lower, your private mortgage insurance premiums are no longer due.
When you refinance your mortgage, you’re establishing a brand-new loan with new terms. Typically, this means you’ll have to go through the whole mortgage application and approval process.
As previously mentioned, it’s important to establish a goal before starting the refinance process. You’ll first need to decide why you’re refinancing: to tap into equity, to lower your interest rate, to pay off your mortgage faster, among other reasons.
Other reasons to refinance include:
- Replacing an adjustable-rate mortgage
- Falling interest rates
- Your credit score has improved
How Long Does an Appraisal Take?
An appraisal can take anywhere from a few days to several weeks, depending on the size of the home and the current housing market.
During a refinance, the appraisal protects the bank by ensuring that it doesn’t lend the homeowner more money than the home is worth.
During an appraisal, a licensed or certified professional provides an opinion of the home’s value as an unbiased third party. The appraiser will look at the physical attributes of your home’s exterior and interior and will ask the broker if any improvements have been made or if any repairs should be included in the valuation.
This helps the appraiser fill out the Uniform Residential Appraisal Form, which includes questions about the property’s condition, neighborhood housing trends and other information. The physical inspection can take anywhere from 15 minutes to several hours.
How to Prepare Your Home for an Appraisal
Preparing your home for an appraisal is a great way to ensure that the process goes well during your refinance. Here are some steps you can take to get your home ready.
- Invest in small upgrades – Things like updating the hardware in your kitchen, removing popcorn ceilings or adding a peel-and-stick kitchen backsplash are inexpensive yet effective ways to add aesthetic value to your home.
- Improve your curb appeal – Power wash your siding, mow the lawn, plant some flowers and update your front porch decor to give your home’s exterior a boost.
- Declutter – Clutter can make your home seem smaller and can hide valuable renovations you’ve made. Put away laundry, clear the kitchen counters, pick up your children’s toys and tidy up the front hallway to make a great impression on the appraiser.
- Make sure everything works – Run your ceiling fans, test your kitchen appliances, open and close all the windows, run both the heating and cooling systems; make sure all of your home’s major systems are in working order.
- Make a file detailing all improvements – Did you recently replace the windows or install a new gas fireplace? Maybe you added a new patio to the backyard or installed a security system. These all add value to your home, so make it easier for the appraiser by gathering all proof of these updates—receipts, contractor invoices, zoning permits—into one organized file.
On the day of the appraisal, set your thermostat to a comfortable temperature, and do some light cleaning—take out the garbage, sweep and vacuum, wipe down the kitchen counters and put away any items like shoes, toys and anything else that’s out of place. Kids and pets can be a distraction. Make arrangements for your kids and pets to either be with a relative or neighbor on the day of the appraisal.
How Long Does it Take to Close on a House with a Conventional Loan?
It takes approximately 47 days to close on a conventional loan in accordance with Fannie Mae’s qualified lending standards. On average, conventional refinances take around 35 days to close.
How Long Does Underwriting Take for Refinance?
Underwriting is the process during which the lender takes a closer look at your finances to see if you qualify for a loan. Several factors determine how long this process takes, from the accuracy of your loan application to current market conditions.
How to Speed Up the Refinance Process
- Know exactly why you want to refinance – Be clear about your objective when beginning the refinance process. Changing your mind can cause delays in closing.
- Pick a refinance loan that doesn’t require an appraisal – If you just want to reduce your interest rate or have a VA or FHA loan, you may be able to refinance without an appraisal.
- Fill out an accurate application – Incorrect or incomplete information can cause delays, so take the time to gather all the necessary documents and fill out the application carefully and completely.
PrimeLending: Where Home Loans and Simplicity Unite
Now that you know how the refinancing process works, you’re ready to get started and achieve your financial goals. PrimeLending has more than 30 years of lending experience, and its expert lending partners can help you navigate the process.
PrimeLending has more than 400 loan options to choose from and can guide you through a first-time home purchase, a mortgage refinance and more. Contact the experts at PrimeLending today or visit PrimeLending.com to learn more.