Refinancing a home is very similar to getting a mortgage, but you might be wondering how long the process might take. If you have time-sensitive goals, knowing average refinance timeline for each stage could help you with planning.
How long does it take to refinance a house?
According to a recent report by Ellie Mae, the time to close on a home refinance has decreased significantly over the last few months.
As of February 2018, the average time to close on a home refinance loan was 37 days, down from 50 days in October 2016. Granted, closing times vary by loan type (i.e. FHA, conventional VA, etc.) but the average is coming down across all home refinance loans, Ellie Mae found.
Jason Lerner, area development manager and mortgage broker at George Mason Mortgage, LLC, said that refinancing could be even faster if there are no delays or complications.
There are many variables that come into play that could affect the timeline for your home refinance.
One variable in the timeline will be how responsive you, as the loan applicant, are with providing and verifying information as requested by the lender. The other variable is how responsive your lender is and whether or not there are issues or complications with your application.
The good news is that you can control your level of responsiveness and communication to help the process go as smoothly as possible while minimizing delays. However, you cannot control how the bank handles their internal processes.
That’s why it’s a good idea to review lenders who have a good track record of proving the best home refinance rates and customer service. Often, the best place to start is with your current lender, especially if you are a fan of their customer service, but always compare their offer with other lenders as well to be sure you’re getting the best deal.
The mortgage refinance process — from start to finish
It’s good to know about all the steps of the refinance process. This way, you can anticipate what’s needed and be prepared for the closing table that much quicker.
Here are the steps involved in most home refinance loans, along with how long you can expect them to take (barring delays, problems or issues). Some of these stages can overlap or occur simultaneously.
Figure out why you want to refinance
Preparing to refinance your home loan comes down to knowing your objective so you can narrow down a loan type, amount and potential repayment schedule. This is an important step.
Without being clear on exactly why you are refinancing your home, you could end up choosing a loan that doesn’t suit your needs, or even end up overextending yourself financially, which could put your home in jeopardy.
Refinancing your home just because you can is not a good idea. Create a list of financial goals, amount of money it will take to reach them along with a budget that includes your refinance scenario.
Common goals for refinancing a home could include:
- Having a lower monthly payment
- Consolidation of other debt
- Get a lower interest rate
- Pay off the loan quicker (with a shorter term, lower rate or both)
Home refinance costs (more below) should also be considered in this equation. Though the equity in your home is yours, accessing it still costs money. If possible, fare on the conservative side when it comes to determining the loan amount and type for your home refinance.
Choose the right refi loan
Now that you have an idea of what you’ll use your loan for and what you can afford, it’s time to determine the best type of home refinance loan.
There are many options when it comes to refinancing your home. You should become familiar with each so you can choose the best one for your needs.
Here are some loan types you could research:
- 30-year fixed: A fixed interest rate loan amortized over 360 months
- 15-year fixed: A fixed interest rate loan amortized over 180 months
- Adjustable rate mortgage (varying types and terms): Interest rate resets periodically
- Interest only: Borrowers pay interest on the loan, then principal
- Payment option: Adjustable rate mortgage with multiple payment options
- Balloon: Lower payments during loan term with a large payment at the end of the term
Next, you’ll want to explore different options offered under FHA, VA, USDA or conventional home refinance loans. There are ups and downs for each kind of mortgage, but ultimately, you need to choose the product that will help you meet your financial goals.
Compare offers from lenders
Now that you have a sense of the best type of home refinance loan, it’s time to research lenders who can offer you the best home refinance deal possible. Shopping for the best refinance rates can save you thousands of dollars, so don’t skip this step!
The terms offered will be based on a few things like how much your home is appraised for, the maximum loan-to-value a lender will offer, current market interest rates and your personal credit profile.
If you are especially concerned with how long it will take to refinance your home, you can make this a part of your research. Dan Green, former mortgage loan officer and owner of mortgage-literacy website Growella said, “Homeowners — especially homeowners working on a deadline — should ask about time-to-close as part of the lender comparison process.”
Understand the fees and additional costs
As mentioned before, financing your home is no small feat and it does come with a price tag. You should know upfront about the fees and costs related to a home refinance, as it should help you determine whether or not this is a move you actually want to make.
Think about how much you paid to close on your original mortgage loan to anticipate your closing costs this time around.
You can use a home refinance calculator so you can see the impact of refinancing your home when it comes to interest, monthly payments, tax deductions, total mortgage cost, etc.
Here are some home refinance costs you should know about:
- Mortgage application fee
- Home appraisal
- Loan origination fee
- Document preparation fee
- Title search fee
- Recording fee
- Flood certification fee
- Inspection fee
- Attorney fee
- Survey fee
Costs could vary by state and lender, so compare these fees on your Loan Estimate (see below) as you look at multiples lenders.
Submit your refi application to various lenders
Most lenders will allow you to apply for your home refinance online. To streamline your application process and get the best rates, you can apply to several lenders at once. This way, you can explore the best rates available while having lenders compete for your business.
If all of your refinance applications are made within a 30-day time period, the inquiries will not affect your score while you are shopping for rates.
Be prepared to provide demographic information about yourself and co-borrower, along with information about your property, original loan and more. Your lender will also eventually ask for additional proof to support the information you provide in the application. This would be a good time to start gathering this documentation up.
Get a loan estimate
Once the lender has processed your application and verified your information, they will provide what is called a Loan Estimate (LE.) By law, they must submit this loan estimate to you within three business days of receiving your completed loan application.
The Loan Estimate form is a standardized template that clearly outlines the home refinance terms the bank expects to offer you, should you decide to go forward. The bank has not yet approved (or denied) your refinance loan at this point, and they may ask you to sign the LE as a record of receipt on your end.
Again, you’ll want to use this Loan Estimate to compare multiple offers from various lenders.
Lock in your rate
Prevailing rates for mortgages can change from day to day and even from hour to hour, so it’s a good safety measure to lock in your rate. A rate lock means your lender will “lock” in your interest rate until closing.
Some lenders may lock your rate as part of issuing the Loan Estimate, but this is not always the case. You can check the top of your Loan Estimate document on the first page to find out if your interest rate is locked, along with when this rate will expire.
Submit required documents for loan processing
Among the supporting documentation you’ll be asked to provide may include:
- Pay stubs
- Tax returns, W-2s and/or 1099s
- Credit report
- Bank statements
- Proof of any supplemental income
Note: It’s a good idea to check your credit report regularly in case there’s inaccurate information that needs to be addressed. You don’t want anything to prevent (or delay) the bank from processing your application or extending a refinance loan to you.
Once this information is provided, the processor will go on to order your credit report, home appraisal and payoff amount from current lender.
This is where an appraiser will come to your home and determine its value. They will be dispatched by the bank and come view the property, look up comparable properties nearby and furnish a report with their findings. The amount you’ll be able to refinance will be based on this appraisal report.
At this stage, the lender is putting all the pieces together — the appraised value of your home, your personal financial situation along with your predicted ability to repay the loan on time and as agreed. This risk analysis can take time and may require additional information.
You should be ready to provide additional information to your loan processor, if needed. Also, your employer could be contacted to verify your salary and employment status during the underwriting phase.
This letter states that the bank agrees to lend you money, but there could be additional requirements, such as providing more information or clarifying information you’ve already provided. The bank can rescind this offer if there is an significant change in your personal financial situation as well.
However, once you meet the conditions set forth in the commitment letter, the underwriting department will issue a “clear to close.” Your loan officer will let you know via email or phone call that the bank will soon communicate the next steps for your closing date.
At least three days prior to closing, you’ll be issued a Closing Disclosure. It will outline the final terms of your refinance loan.
This three-day timeline is designed to give you enough time to compare rates and ask your lender questions about your loan. For example, if your closing disclosure varies greatly from your Loan Estimate, this is time to get clarification as to why.
You can also ask to review your closing documents before you get to the closing table. Your lender should be able to provide an electronic version so you are aware of what you would be signing at closing. The Consumer Financial Protection Bureau (CFPB) offers examples of closing forms along with instructions on how to interpret the information.
If you need help staying organized throughout this process, you can use a closing checklist to help you keep track of each stage of the closing process.
At this stage, you will sign all the required documentation to complete your home refinance. You should bring your Closing Disclosure with you to make sure your the terms you were quoted are on par with this document.
Sometimes your loan closing will be at an office with a closing agent (from a title company) that facilitates the entire process. According to Rafael Reyes, producing branch manager at loanDepot, “Most often, the lender will send either a representative from the title company or a lawyer to your home for the closing.”
He added, “The borrower doesn’t need a lawyer on their side for the closing, but they could hire legal representation at their discretion.”
At closing, you’ll sign your promissory note, mortgage, initial escrow disclosure and “right to cancel” form. You should bring proper identification because there may be a notary present who requires a valid ID to notarize your signature.
How you can speed things up
If you’re refinancing your home with the idea of saving money, you probably want to start saving sooner than later. You can start capturing those savings as soon as your refinance is complete and funds are disbursed.
To speed up the refinance process, you’ll want to stay on top of all the documentation requested by your lender. Even better — collect everything before you begin the loan application process so everything is ready, even at a moment’s notice.
You will also need to be responsive when it comes to requests for information. Though there are a number of variables that can influence the refinance timeline, your responsiveness and preparedness will help move things along much faster.
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