The Refinancing Process FAQ

 

How does the refinancing process work?

Refinancing involves replacing your current loan with a new one. When you refinance, you will apply for a new mortgage just like when you bought your home. Once approved, the funds from your new loan will be used to pay off your existing mortgage. This effectively replaces your old home loan with a fresh one, typically with a lower interest rate, lower monthly payment, or some other benefit.

How long does the refinance process take? 

Some lenders take longer than others to complete a refinance. Typically, banks and credit unions will take longer than online lenders. Most lenders average anywhere from 30-45 days for a mortgage refinance.

How do I qualify for a home refinance? 

You will have to meet certain criteria for mortgage refinancing. Steady income, a good credit score, acceptable debt-to-income ratios, and at least some home equity will be necessary to refinance.

How much does it cost to refinance?

The closing costs for refinancing a mortgage are similar to the costs associated with buying a home. Closing costs in the U.S. generally average between 2 and 5 percent of the loan amount. That is $2,000 to $5,000 on average for every $100,000 you borrow. However, there are certain costs, such as owner’s title insurance, that you will not incur when you refinance, making refi fees slightly lower than home-buying fees.

Do you get money back when you refinance? 

If you are approved for it, you can absolutely get cash back when you refinance. These types of loans are considered Cash-Out Refinances. Rates and fees can sometimes be higher for these. Be sure to check with your lender if your goal is to get cash back.

Should I refinance with my current mortgage lender? 

If you are satisfied with your current lender, that could be enough motivation to refinance with the same company. But, while the benefits of good customer service are important, you will still want to ensure your existing mortgage lender can meet your refinancing goals before moving forward.

Does refinancing hurt my credit score? 

According to FICO, a hard inquiry from a lender will decrease your credit score by five points or less. If you have a strong credit history and no other credit issues, the impact may be even smaller. And the drop is temporary. Your scores will bounce back up again, usually within a few months, assuming everything else in your credit history remains positive. Fortunately, most credit scoring bureaus will count multiple inquiries for a mortgage loan as one if they are made within a certain time period (14-30 days). So, you can apply with a few different lenders without your credit being dinged multiple times.

What is the downside to refinancing? 

The primary downside to any type of refinancing is the cost associated with the loan. Even a no-closing-cost refinance still has expenses in the form of a higher interest rate or a bigger loan amount. The other downside to refinancing is that it starts your loan over. So, if your home is almost paid off and you want to cash out your equity, you might prefer a Home Equity Loan or Home Equity Line of Credit (HELOC) over a refinance.

Do I need an appraisal to refinance? 

Some refinance programs do not require appraisals. FHA Streamline Refinances and VA Interest Rate Reduction Refinance Loans (VA IRRRLs) typically do not require an appraisal. For most others, an appraisal will be necessary.

How often can you refinance? 

In most cases, you can refinance as often as you want. However, some lenders look for a seasoning period between home loans, or a certain amount of time between appraisals. Typically, you will have to wait six months before you can refinance with the same lender.

Should you refinance?

Thanks to significant home value appreciation, millions of homeowners have ample incentive to refinance. However, refinancing is not the right move for everyone. You need to make sure a new loan will truly benefit you, whether via a lower interest rate, cash-back, or some other perk.

Check your loan options with a lender. If you can save money in the long run, a refinance is likely the right move.