When Can I Refinance My Mortgage?

Gina Pogol
The Mortgage Reports contributor

You Can Refinance A Mortgage At Any Time

As a homeowner with a mortgage, it’s your right to “replace” your mortgage financing at any time.

There are a number of reasons why you might want to get new financing.

Maybe mortgage rates have dropped and the rate you’re currently paying is higher than today's mortgage rates. Or, maybe your home equity has increased and you want to take cash out for home improvements or other causes.

You might even want to switch your mortgage from a 30-year fixed-rate mortgage to something shorter such as a 15-year fixed-rate mortgage; or, to an adjustable-rate mortgage instead.

When you replace your mortgage financing, it’s known as a home loan refinance.

You can ask for a refinance at any time, and you can work with any mortgage lender in the county — not just your current one.

Verify your new rate (Oct 28th, 2020)

What Are Your Refinance Options?

Homeowners have a multitude of refinance options. The path you choose should depend on the reason why you’re refinancing.

In general, refinances can be grouped into three categories.

The “rate and term” refinance is meant to replace your existing mortgage with a new loan of lower mortgage rate, different term, or both.

With a rate-and-term refinance, the starting balance of the new loan is similar to the existing balance of the loan being replaced. Refinance fees are paid by you as cash; or, are paid by the lender using a low-closing cost refinance.

The “limited cash out” refinance is very similar to the rate-and-term refinance, except that closing costs are added to your loan balance. Your starting mortgage balance, therefore, approximates your existing loan balance plus whatever costs are incurred as part of the transaction.

Lastly, there’s the “cash out refinance”.

With a cash-out refinance, the lender converts a portion of your home equity into cash, which it hands to at closing.

In a cash-out refinance transaction, your new starting mortgage balance is equal to your existing loan balance plus your refinance costs, plus whatever extra cash you’ve requested from your available home equity.

Verify your new rate (Oct 28th, 2020)

Reduced Paperwork Refinancing: The Streamline Refinance

For certain homeowners, there is a fourth refinance option.

Known as a “streamline refinance”, it’s a low-documentation, reduced-paperwork refinance which can often close in half the time as a regular refinance.

Streamline refinances are restricted by mortgage type:

In general, streamline refinance loans don’t require home appraisals to be performed and, many times, they waive the typical income and asset verifications required by a standard rate-and-term refinance.

Streamline refinances are restricted to rate-and-term and limited cash out. You may not do a cash out refinance via a streamline refinance loan.

Verify your new rate (Oct 28th, 2020)

How Do You Apply For A Mortgage Refinance?

Applying for a mortgage refinance is similar to applying for a “purchase” mortgage loan — shop for low rates among multiple lenders, then select the lender with which you want to work.

Always shop between two or more lenders when you’re shopping for a mortgage rate.

With only a few exceptions, as part of your refinance, you’ll be asked to re-verify your income, your assets, your employment, and any changes in your credit history.

For example, in order to document income, you’ll be asked to show recent pay stubs and W-2s for the prior two years; and, you may be asked to show your two most recent years of federal tax returns.

Self-employed borrowers may be asked to show additional proof of income.

To document assets, you’ll be asked to show the two most recent statements from all of your checking and savings accounts; and, from your retirement accounts, if you have any.

Employment will be verified with a phone call to your employer; and, your credit history will be checked using a recent copy of your credit report.

You’ll be asked to explain any changes to your credit history, including new patterns of missed payments or delinquencies; new accounts opened and not yet reporting; and, new judgments or liens filed against you.

You won’t be asked to fund a down payment, because you already own your home. However, you might be asked to document from which bank account(s) you’ve been paying your mortgage.

There is very little paperwork you will be asked to provide as part of a mortgage loan refinance that you weren’t asked to provide with your original purchase mortgage loan.

Verify your new rate (Oct 28th, 2020)

How Do You Get Approved For A Mortgage Refinance?

The mortgage underwriting process is mostly an automated process, making using of software known as an Automated Underwriting System (AUS).

The AUS is a program which performs several tasks, such as calculating a borrower’s debt-to-income ratio and pulling a current credit report fro the credit bureaus, then passes judgment on a borrower’s request for a mortgage approval.

The three decisions made by an AUS are Approve, Refer, and Refer with Caution.

An “approve” recommendation means that your request for a loan can be approved provided that specific additional paperwork can be provided. This paperwork may include the completion of a home appraisal which certifies the home’s current value; or, an additional month’s worth of pay stubs.

Ratings of “refer” and “refer with caution” mean that your loan cannot be approved, as submitted.

Refer ratings typically mean that additional information is needed to make a decision. Loans can be resubmitted for approval after additional documentation is received.

Loans which are refer with caution typically can’t be approved.

Since late-2015, with the U.S. economy improving and with lenders loosening their mortgage approval standards, more than two-thirds of refinance applications are getting all the way through to closing.

What Are Today’s Mortgage Rates?

There are reasons to refinance when mortgage rates are falling; and reasons to refinance when mortgage rates are rising, as well. Be sure to shop around to find your best terms.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Oct 28th, 2020)