A refinance of a home loan is a serious financial transaction. The cost of an average refinance is between 3 and 6 percent of the home loan's value, which can easily be thousands of dollars. With a little preparation beforehand, a borrower can know what to expect in a home loan refinance, which will help make the transaction as smooth as possible.
To start the process, the lender will request that you fill out a Uniform Residential Loan Application. This can be found either on the lender's website or at their office. This application requires that you list all applicants' full names, addresses, incomes, debts, and assets. The more complete your application is from the start, the less paperwork will be required from you in the long run.
Depending upon your financial situation, your lender will ask for a variety of documents to prove your identity, income and ability to repay the debt. These documents include a driver's license, bank statements, tax returns, social security statements, retirement statements, divorce decrees and other debt statements.
Truth in Lending Statement and Good Faith Estimate
The two main documents that a borrower must review prior to deciding on the mortgage refinance are the Truth in Lending Statement and the Good Faith Estimate. The Truth in Lending Statement outlines the total cost of the loan, including all interest paid throughout the life of the debt. It is also a good indicator to use when comparing other refinance offers. The Truth in Lending Statement lists the annual percentage rate (APR), which is the total cost of the mortgage, including fees and monthly interest rate. The mortgage with the lowest APR, not the lowest interest rate, is the cheapest overall mortgage. The Good Faith Estimate lists the monthly interest rate on the mortgage, as well as a listing of all associated closing costs.
Timeline of Events
Once you submit your application, the lender will check your credit report and process your application. Next, he or she will give you a stack of documents that outline the terms of the agreement, including the Truth in Lending Statement and the Good Faith Estimate. Once you have reviewed those documents and decided on your interest rate, you will lock in your rate for a set amount of time, typically 30 days. The lender will then request any needed documentation, such as bank statements, and process your loan request. Typically, three or four weeks later, you will close the refinance through a real estate attorney or a title company, depending upon your state of residence.
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