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Ready to Refinance? 8 Steps for Success

Trulia Steps for Refinancing a Mortgage
Take care of these key parts of the process to help stay on track.

Ready to consider refinancing your mortgage? It can seem like an overwhelming prospect. So we broke it down into the key points you’ll need to take care of — eight checkpoints that can help make sure you’re on track, each step of the way. But it’s important to remember that every situation is unique; be sure to consult with a real estate or financial professional and evaluate your specific scenario before embarking on the process.

1. Identify your objectives

Are you trying to save money by reducing monthly payments, or do you want to take out equity from your home? Interested in switching from an adjustable-rate mortgage to a fixed-rate mortgage? (Or vice versa?) When you shop around with lenders, they’re going to want you to be able to answer these questions. Make sure you can clearly articulate why you’re looking to refinance.

2. Refresh old paperwork

All that paperwork you needed to obtain your first mortgage? Yep, you’ll need to dig it up and and update each piece. Obtain a copy of your most recent credit report and make sure that you understand your score and take steps to correct any errors. And remember: Now’s not the time to apply for a new card. Every time you open a new account, your credit score is affected — and lenders can (and will) check your credit again, sometimes days before closing on the refi.

3. Crunch the numbers

Not a whiz with numbers? No problem. You can use online tools like Trulia’s refinancing calculator to figure out what makes sense for you. Don’t forget to consider closing costs when you evaluate totals — even “no-cost” refinancing options have associated fees.

4. Shop around

Again, just like in your first go-round shopping for mortgages, you’ll want to choose multiple lenders and submit an initial application with each. Comparing rates and fees can save you serious cash, so it’s worth it to make sure you interview potential lenders and weigh their pros and cons.

5. Submit your application

Gather all the required documents for prequalification. (Yes, it’s worth it.) Required documentation can include recent pay stubs (or other proof of steady employment) and bank statements. Lenders will probably also ask to see your tax returns from the last two or three years. Take care to have all of your paperwork in place beforehand so that you’re not wasting precious time that your lender could have used to approve you.

6. Pick your loan

Consider the terms and fees of each loan, and make sure that you don’t just read the fine print, but that you understand it. Be certain to look at the “true” cost of refinancing long term, along with the immediate financial benefits. For example, refinancing into another 30-year fixed-rate mortgage may lower your monthly payments upfront, but you’ll have to weather many more years of additional payments.

 7. Get an appraisal

The appraisal report will be an important factor in determining the success of your loan — and you have to pick up the bill (anywhere from $300 to $500). It’s important to understand why the appraisal is a crucial component of the process. Unfortunately, there’s the very real possibility that you find out your home is worth less than you thought. The good news is that there are steps you can take to fight that low appraisal.

8. Be prepared to wait

Delays are common in the refinancing process, so you’ll want to factor in a few extra days for the unexpected. Since you’ve already done your homework and compiled all the relevant paperwork, you should be able to respond quickly to requests from your lender to help speed up the process.