Refinancing your house is really the same as remortgaging your house – it’s basically the process of re-jigging your mortgage, or securing a different loan for it, in order to save you money on your mortgage repayments, to lower your interest rate or to enable you to pay your loan off in a shorter or longer period of time with payments to suit you. Refinancing can also allow you to release some of the equity from the property to use as collateral, or to take out a second loan, often referred to as a second mortgage, to use as collateral. To refinance your home simply to lower your repayments or to take advantage of a lower interest rate, you’ll need a fair credit score – but to refinance it in order to release equity or for a second mortgage, you’ll need to have a good to excellent credit score. Learn more about refinancing and how to do it with our quick guide.
Refinancing your home requires virtually the same amount of time, energy and documentation as getting a mortgage in the first place. The process of refinancing often means handing over your mortgage loan to a different lender, and so the new lender will have their own criteria for lending money. You may well find that the new lender requires different documentation, different credit checks or alternate means of verifying your application, but some of the info that you might be required to supply is listed below. Firstly, we’ll tell you how to apply to refinance your house, and then talk you through the information you might need to supply.
Contact Different Lenders
It might sound obvious, but before making your loan application, contact a selection of different lenders to provisionally ask for how much money you might have to pay out each month and what interest rate you can expect to pay. Provisionally contacting these lenders should also give you an indication of whether or not you’ll get accepted for the refinance or remortgage.
Most refinancing lenders will require at least 30-60 days of pay stubs as well as W-2 forms in order to verify how much money you earn and therefore how much money you’ll be able to pay out each month in mortgage payments. If you’re self-employed you’ll need to provide the lender with details of your tax returns as well as bank account statements for the last year or so. Lenders use different criteria for employed and self-employed borrowers and so it’s important that you have the right information to hand.
Clear Up Your Credit
The better your credit, the lower the interest rates you’ll pay on everything from mortgages to credit cards – it’s really as simple as that. Clear up your credit by ordering a copy of your credit report and credit score before you make your refinancing application. If there are any errors, even if there are only slight errors on things like street name and job title, rectify them as soon as you can as they’ll slow your application down and might even result in getting it declined. If you’ve missed any repayments or if there have been any major negative changes in your credit report over the last year – for example, if you missed a mortgage payment or if you were laid off and were unable to pay the bills for a few months – it’s unlikely that you’ll get accepted for refinance, particularly with a negative credit score. Contact the lender and explain your position and why your credit score is bad and ask them what you’d need to do in order for them to accept your refinance application. Follow their advice and re-apply once your credit has improved.
Homeowners insurance is another way for lenders to see how financially responsible you are and it’s entirely possible that they’ll ask for a copy of your insurance certificate to see what you pay out each month in order to protect your home. Some lenders might also recommend that you have mortgage protection insurance in place in order to protect against the possibility that you’ll be out of work or that you’ll default on the mortgage payments. Even if the mortgage lender doesn’t require you to have mortgage protection insurance, it might be a good idea to buy it anyway – then, include it in your mortgage application to show that you’re a low-risk applicant.
If you’re planning to pay your refinanced mortgage back with the help of assets, instead of just income, be prepared to gather evidence to prove how much of an income your assets can provide. You might need to provide a 401K as well as statements for accounts for investments, stocks or hedge funds. If you’ve recently received an inheritance or another large sum of money and are not working, you’ll also need to provide very up-to-date current accounts to prove how much money is currently in your account and that the sum of money will cover your mortgage repayments.
Finally, you’ll need to gather liability verification so that lenders can have an idea of your outstanding debts and lines of credit. Most lenders will also want to see an outgoings statement, to see how much money you spend each month and how much money you’ll have leftover at the end of each month. You’ll need to include information about any other properties you own, as well as details of credit cards and car finance, mobile phone finance, credit card accounts, child support and alimony and any other debts you might have – for example, if you’re paying money back to your energy supplier because you couldn’t afford the monthly payments. Although it might seem counter-productive to tell your lender about debts you might have, the more honest you are and the more detail you give, the more the lender can tailor the refinancing deal to suit you and your family’s needs.