What do you need to refinance your home loan?
The mortgage refinance checklist below shows the documents you need to refinance a mortgage. Following it can make your mortgage refinance go smoothly and eliminate unwelcome surprises. But before completing the document checklist, decide on your refinance goal, and determine whether or not refinancing now can achieve that goal.
Before refinancing: ask yourself these questions
Should you refinance your mortgage? Ask yourself these questions before you begin the process. If you get a green light to refinance, proceed to the document checklist below.
1. What do you want to accomplish with a mortgage refinance?
You probably don't want to refinance for bragging rights -- to boast about a low interest rate at your next party. But there are many good reasons to refinance:
- Reduce your interest paid over the life of the loan
- Pay off your home loan faster
- Lower your monthly payment
- Take cash out for debt consolidation, large purchases or investment
- Remove a co-borrower from your mortgage
- Replace an adjustable mortgage rate with a fixed rate
Once you know what your goal is, you can evaluate mortgage refinance options to find the one that best meets your needs.
2. Can you cover the refinancing costs?
If your main goal is to save money by refinancing, check your time frame. Unless you opt for a "no-cost" home loan, it takes time to recoup the cost of refinancing through monthly savings. Your first step, if your goal is to save money by refinancing, is to run some loan options through this refinance calculator.
Understand that you probably won't have to pay for your costs out-of-pocket. You may choose to add them to your refinance balance, if you have enough home equity. Or you can pay a slightly higher interest rate in exchange for your lender covering the closing costs. That's how lenders pull off so-called "no-cost" refinances.
The nice thing about no-cost refinances is that as long as the interest rate is lower than what you're currently paying, your break-even is immediate.
If you're curious, there are ways to get a close estimate of what your refinance might cost.
3. Do you qualify to refinance?
To refinance successfully, you'll need a stable source of income. If you're a wage earner with a good job history, lenders assume that your earnings will continue. If you're self-employed, approval is much easier if your income is increasing or stable.
How is your credit? If your FICO score has fallen significantly since you took out your last home loan, you may not qualify for the best mortgage rates today. But if your credit score has improved, you might be able to get more attractive loan terms even if mortgage rates have risen overall.
Your home value also affects your ability to refinance profitably. One of the factors mortgage lenders use to set your interest rate is the loan-to-value ratio, or LTV. It's your loan amount divided by the property value. The higher the property value, the lower the LTV. And the lower the LTV, the better your mortgage rate can be. If your home has lost value, it is harder to refinance at the best interest rate.
See what's happening with your home's current value using HSH's Home Value Tracker.
Before you apply for a refinance
Mortgage refinancing requires more than assembling necessary documents. Begin by taking these six actions:
- Pull your credit report for free at annualcreditreport.com. You can purchase your scores for a nominal fee. This site is the only one that won't require your credit card or sell your information to marketers. Knowing your FICO score helps you get more accurate rate quotes from lenders.
- Fix credit report errors. If you can prove that a line in your report is wrong, your lender can resolve it fast with the help of a rapid re-scoring company. Or you can contact the credit bureaus yourself, but it does take longer.
- Estimate the amount of equity you have in your home. Use HSH's KnowEquity Tracker to estimate your home value and remaining mortgage balance. This also helps lenders provide better quotes to you.
- Know your payment amount and loan balance. It should be on your credit report, or find it on your monthly statement or call your lender.
- Don't apply for credit or increase credit card balances. Both of those things can lower your FICO score.
- Contact several lenders for mortgage quotes, and choose one to refinance your loan. This is easy to do online, or you can phone or visit a few lenders.
Next, it's time to gather your mortgage refinance documents.
Mortgage refinance document checklist
Assemble the required documents that apply to you, based on your situation.
For all applicants:
- Photo ID to prevent identity theft and mortgage fraud
- Authorization to pull a credit report (your lender has the form; you just sign it)
- Proof of homeowners insurance
- Proof of income and assets (see below for specifics)
- Check for your appraisal and credit report
- A most recent copy of your existing mortgage statement.
- A copy of your property's deed to show legal ownership.
- Property tax statement for the current year.
- Names and addresses of your employers for the past two years.
For wage earners:
- Most recent two pay stubs with year-to-date earnings
- Copies of statements for all bank, investment and retirement accounts
For wage earners with multiple jobs in the last two years:
- Two years W-2 forms
- Most recent two pay stubs with year-to-date earnings
- Copies of statements for all bank, investment and retirement accounts
For wage earners with bonus or commission income:
- Two years tax returns with all supporting schedules
- Most recent two pay stubs with year-to-date earnings
- Copies of statements for all bank, investment and retirement accounts
For self-employed borrowers:
- Two years' tax returns including all schedules
- Year-to-date financial statements
- May also require copy of business license and business filings
- Copies of statements for all business, bank, investment and retirement accounts
For most common types of unearned income:
- Social security form SSA-1099, award letter or bank statements confirming direct deposit
- Pensions, form 1099-P, award letter for pension, or bank statements confirming direct deposit
- Disability, child support, alimony or public assistance require documents proving amount and duration
- Forms 1099-INT for interest income or 1099-DIV for dividend income
- Form 1099-B for capital gains from brokerage accounts
- Tax returns and supplementing documents may be used to document all unearned income, including rental real estate
Statements of any debts, including:
- Auto loans, credit card accounts, student loans, installment loans
- Home equity loan or line of credit statement
Other documents for specific situations:
- Divorce decree for alimony or child support income, or to prove that your spouse is paying debts that appear on your credit report
- Letters of explanation for problems on your credit report
- Inspection report for septic systems or wells
- Canceled checks (12 months) or a rental verification form showing on-time payment of rent
- Flood insurance declaration page for homes in designated flood zones
- Subordination letter from your home equity lender (if you intend to keep any existing loan or line of credit)
This mortgage refinance checklist is fairly comprehensive, but doesn't cover every possible document that could be requested for mortgage refinance approval. Sometimes, information on one page triggers a request for additional documentation. For example, bounced checks on a bank statement often prompt underwriters to require a letter of explanation, or you may need to document any gaps in your employment history.
Respond quickly to underwriting requests
It's great to be prepared in advance. And you probably won't have much to do once you've supplied a complete application package to your lender. However, if an underwriter wants additional information, ignoring the request won't help. That's especially true if mortgage rates are rising and you hope to close fast.
When you refinance your mortgage, you get a whole team working together to complete your loan on time and as seamlessly as possible. Helping them help you isn't just nice. It's smart.
This article was revised by Keith Gumbinger.
