If your home equity is high, now could be a great time to refinance your home loan. But what exactly does a refi entail, and how long does it take? While no two refi timelines will be the same, we’ve broken down the standard steps of the process and how long you can expect to spend on each. The shortest step? Reading this blog.
What kind of refi should I get?
At the very beginning of the refi timeline, you’ll be faced with a fork in the road: rate-and-term or cash-out.
With a rate-and-term refi, you’ll get a new (you guessed it) rate-and-term without advancing any new money. If you’re looking to lower your monthly payment or pay off your mortgage sooner, a rate-and-term could be the right fit for you. After all, a lot could’ve changed since you first bought your home and you may qualify for better terms now than you did before.
Speaking of home equity, a cash-out refi* lets you turn that equity into cash. Keep in mind that because you’re taking cash out, you could end up with a higher monthly payment to cover this. If you’re looking to build even more equity with upgrades like a kitchen remodel or pool, a cash-out refi is a great way to fund those home improvements.
So, if you want a lower monthly payment, a rate-and-term fits the bill. If you want to leverage your home equity for more flexible funds, a cash-out could be the better option for you.
*Using your home equity to pay off debts or make other purchases does not eliminate the debt or the cost of the purchases, but rather increases the loan amount of your mortgage to be paid according to your new mortgage terms.
How do I start the refinance process?
The first thing you’ll do is reach out to your lender (or a few lenders if you want options) for a rate quote. You could have your quote within minutes, but take a few days to consider your options. With your lender chosen and quote in hand, it’s time to apply for your refi.
During the application process (which typically takes a few days to a couple of weeks), you’ll need documentation similar to what you provided for your purchase: recent pay stubs, W-2s, and bank statements to name a few. Once you’ve applied, your lender will put together some options for your new rate, then you’ll lock in your best fit.
In the next few weeks, your lender will verify and review all the information you provided in the application, just to make sure everything is accurate. This is called underwriting, and it’s also the point in the timeline where you’ll need a refinance appraisal.
Why do I need a refinance appraisal?
A refinance appraisal is key to qualifying for the new rate you want, and for determining how much cash you can actually get in a cash-out refinance. Over the life of your mortgage, your home has been building equity, whether that’s from upgrades you’ve made like installing new appliances or external factors like the housing market. An appraisal will tell you just how much value your home has accrued since you bought it.
At this point, your lender will order the appraisal for you, the appraisal company will send someone to assess your home, and you’ll get a professional estimate of its value. Depending on how fast the appraiser gets back to you, the whole process could take a few days to a couple of weeks.
Some refinance types, like a VA Streamline Refi (also known as an IRRRL or Interest Rate Reduction Refinance Loan) or an FHA Streamline Refi, won’t require an appraisal. These refinance loans are available if you’re refinancing from a VA loan to a new VA loan, or from an FHA loan to a new FHA loan. With a streamline refi, you’ll enjoy a faster process and less paperwork.
I got my refinance appraisal. What’s the refi timeline from here?
You’ve got your appraisal, which means you’re almost done. A few days before closing, your lender will send you closing disclosures. You should review these carefully to make sure everything is correct and ready to be finalized. Once you’ve reviewed the documents, your lender will help you set up a time and place for closing. You, your co-borrowers if you have them, and a lawyer or closing agent will need to be there.
On the big day, you’ll sign the final documents and pay any costs that haven’t been rolled into your new mortgage loan. If you’re getting a cash-out refi, you’ll receive the check at or within three business days of closing.
And that’s it! From rate quote to close, the whole process typically takes 30-45 days. The turn time between submitting your application and getting approved could take anywhere from a few hours to a few days, depending on how complex your loan is.
How soon will I need another refi?
While there’s no limit to the number of times you can refinance your home, you should wait at least long enough for something significant in your finances or the housing market to change. That could be any number of things, including reducing your debt-to-income ratio (the percentage of your monthly income spent on debt payments), building your credit score, or completing home upgrades.
So, how soon you’ll need another refi is different for everyone—you might never need to, or you may find yourself refinancing as early as six months down the line. Just remember that you’ll have to pay all the fees and closing costs associated with the process each time.
From rate quote to close, the home loan refi process typically takes 30-45 days. A dependable lender will make sure you’re in the loop for each and every one of those.
