Every year, countless homeowners consider refinancing their home, and there are plenty of questions that come with this process. One question homeowners may have is, “how long does it take to refinance my home?” In most situations, homeowners can refinance their home loan in 30-45 days, but every situation varies and specific factors can impact the process and make it longer than expected.
The length of the process varies depending on the current mortgage, the lender, rates, credit scores, and more. In essence, it can take anywhere from a month to a few years depending on what the lender is requesting (for instance, if the lender wants the borrower to increase their credit score). The steps a homeowner takes can also be crucial to their timeline, as having the right documentation ready can prove vital to speeding up the process.
The more prepared a homeowner is, the more helpful it is for the process, and the quicker it is to refinance a home. However, for homeowners who come into the situation unprepared or who have refinanced their home often, the 45 days may come and go without a new loan being completed. Throughout the process, there are various things to consider, and this blog will help you prepare accordingly.
When is refinancing a good idea?
Refinancing can be a good idea for homeowners who:
- want to get out of a high interest rate loan to take advantage of lower rates. This is a good idea only if they intend to stay in the house long enough to make the additional fees worthwhile.
- have an adjustable-rate mortgage (ARM) and want a fixed-rate loan to have the certainty of knowing exactly what the mortgage payment will be for the life of the loan.
- want to convert to an ARM with a lower interest rate or more protective features (such as a better rate and payment caps) than the ARM they currently have.
- want to build up equity more quickly by converting to a loan with a shorter term.
- want to draw on the equity built up in their house to get cash for a major purchase or for their children’s education.
If you decide that refinancing is not worth the costs, ask your lender whether you may be able to obtain all or some of the new terms you want by agreeing to a modification of your existing loan instead of a refinancing.
What questions should I ask before I start to refinance?
There are a handful of questions you will want to ask yourself before refinancing. The answer to these questions could affect how long it takes to refinance your home. More importantly, the answers may determine whether you should refinance at all or simply keep your current mortgage terms.
- What is your current interest rate and what is the current market interest rate?
- As a rough rule-of-thumb, if the difference between your current mortgage rate and what is available is approximately 1.5 percentage points or more, it may be to your advantage to refinance. If the difference is 1.5 points or less, it may not make sense to refinance, depending on the amount of closing costs.
- Is the rate fixed or variable?
- If you have a variable rate, the rate is continuing to climb every year, and the current market interest rate is lower, it may be advantageous to refinance your house.
- How long do you plan to stay in this home?
- If you plan on staying in your current house for more than three years, it may make sense to refinance. If you feel confident that you will be moving in less than three years, it will probably be better to stay with your current loan (unless there is a large variance between your current interest rate and what is available).
- Do you have cash available for the closing costs?
- In most cases, you will need at least some cash for closing. FHA and VA loans will allow you to “roll-in” certain closing costs into the new loan, but some cash will still need to be available.
- Is the value of your home increasing, decreasing, or staying about the same? What are the short-term and long-term prospects for the value of your house?
- If the value of your home is staying the same or increasing you may be able to increase your equity more quickly with a lower interest rate. If the value of your home is decreasing, it may not be a good idea to throw “good money after bad” for closing costs when your equity position may well be eroding.
- In deciding whether to refinance an ARM you should consider these questions:
- Is the next interest rate adjustment on your existing loan likely to increase your monthly payments substantially? (If it will, then you definitely want to consider refinancing)
- If the current mortgage sets a cap on your monthly payments, are those payments large enough to pay off your loan by the end of the original term? You will want to refinance to a new ARM or a fixed-rate loan to enable you to pay your loan in full by the end of the term.
Obviously, the lower rates that are common today have even more impact on your savings. Refinancing your house now can have a real impact on your financial health.
Why is the refinance process taking so long?
Several factors can alter how long the process takes to refinance a home. Here are some of the things that could impact your refinancing and the timelines associated with it:
- The requirements for a higher credit score: Some lenders have requirements for borrowers to have a higher credit score, which means they have to work harder (and longer) to improve their credit before being approved for a loan.
- Underwriters who request the same documents more than once: Because many underwriters do their due diligence when a borrower requests a loan, they often ask for documents more than once.
- Understaffing in mortgage departments: The 2020 pandemic resulted in countless individuals losing their jobs, and understaffed mortgage departments have made it more difficult for borrowers to get their refinance completed.
What should I do to prepare for a refinance?
Before moving forward and requesting a refinanced loan, preparation is the key. There are certain steps that homeowners should take to ensure they have the best chance at a successful refinance, including the following:
- Look out for pre-qualification: Lenders look at numerous factors when determining if you qualify for a mortgage refinance, including your credit score, debt to income ratio, and home equity. To help your qualification, you want to have a good credit score and a debt to income ratio lower than 50%. Lenders may not loan more than 80 to 90% of a homeowner’s equity.
- Prepare your documents: Most lenders will ask for specific documents before processing a refinancing loan. This can include your:
- 2 most recent bank statements
- 2 most recent paychecks
- 2 most recent W-2s
- Prepare for the appraisal: Homeowners should have documentations of all upgrades they’ve made to the home and take steps to improve their aesthetic of their home before the appraiser comes. Remember: local market value can significantly impact a property’s worth. Learn more about what factors affect an appraisal.
Do I need an appraisal for my refinance?
There are only certain types of home loans that would not require a homeowner to get an appraisal before refinancing. In most situations, however, a lender will request an appraisal before a refinance valuation is set to ensure they are lending the homeowner the correct amount of money. It’s good to know what appraisers look for in a home refi and which factors affect a home appraisal so that you can get the best price possible for your refi.
Most lenders will not take a homeowner’s self-assessment of the home’s value, and they require an appraisal professional to look at the overall quality of the home, the location, property values in the surrounding area, and market value. Homeowners can benefit from an appraisal when refinancing, especially if they prepare accordingly and know what can hurt the appraisal.
What can impact a home appraisal before refinancing?
Increasing the value of your home appraisal is one of the more important steps for homeowners. Unfortunately, there are certain aspects of the appraisal that homeowners cannot control. For instance, there’s no way a homeowner can impact the comparable homes (comps) in the area and their values. Similarly, a homeowner cannot impact the current state of the housing market. They can choose an appraiser with experience, but even then, it may be difficult to ensure they are getting the most accurate appraisal.
However, homeowners can do certain things to help their appraisal. The steps homeowners can take before an appraisal include:
- Perform repairs on any part of the home that needs it, including cosmetics, appliances, foundation, landscaping, and more.
- Update areas of the home that are outdated such as finishes, crown molding, worn surfaces, old materials, countertops, etc.
- Request full inspections to identify minor issues that can worsen over time. Inspections and home maintenance are extremely helpful to ensure the appraisal goes smoothly.
Do I get money by refinancing my home?
Generally yes, you will get money by refinancing your home, but not always so check with your lender. Many homeowners choose to refinance their home loan because they feel they will get money from it. While this is true in some situations, it’s important to remember that there are different options when refinancing. For some, the objective of refinancing may be pulling money out of the equity they have built to pay for home improvements or other expenses.
Taking out equity is good for some homeowners who plan on staying in the same home for a long period of time, but there are some drawbacks to consider. Other types of refinancing loans may focus solely on lowering the term length or the interest rate of the home loan. These types of loans would not give homeowners direct access to money, but they allow homeowners to save money over time due to lower monthly payments to their home loan.
Do I need to pay closing costs to refinance?
When a homeowner initially buys their home, they pay closing costs to cover specific fees associated with borrowing money, such as:
- Application fees
- Credit reports
- Underwriting fees
- Insurance fees
- Mortgage points
- Settlement fee
When refinancing a home, borrowers can expect to pay closing costs again for the same fees they initially paid when purchasing the home. Typically, refinance closing costs can be anywhere from 2 to 6 percent of the total loan amount, plus any prepayment penalties and the costs of paying off any second mortgages that may exist. Multiple factors can impact how much you pay for closing costs after a refinancing. Luckily though, you will not need a real estate closing attorney for a simple refinance.
One way of saving on some of these costs is to check first with the lender who holds your current mortgage. The lender may be willing to waive some of them, especially if the work relating to the mortgage closing is still current. This could include the fees for the title search, surveys, inspections, and so on.
Overview of how long it takes to refinance a home
While the average to refinance a home is around 30 – 45 days, there are several factors that can make the process much longer. Staying prepared with home improvements, documents, and pre-qualification can all help aid in a faster process, and research is always key moving forward.