5 tips to prepare for a refinance

Sathi Roy (NMLS ID: 1459669)
Byย Sathi Roy (NMLS ID: 1459669)

Sathi Roy, a non-commissioned Mortgage Expert at Better Mortgage, explains how you can make your refinance journey as seamless as possible.

Considering refinancing your mortgage? Here are some steps you can take ahead of applying to make the process go smoother.



1. Determine your refinance goal

The most important step to take before embarking on your refinance journey is determining why you are considering a refinance in the first place. There can be many advantages to refinancing your mortgage. You may be able to save money by getting a lower rate and lower monthly payments. On the other hand, if you're comfortable making the same or higher monthly payments, you can use a refinance to pay off your mortgage faster. Lastly, refinancing can help you consolidate your debt or cash out some of your home equity to pay for repairs or emergency expenses. Pinpointing what youโ€™d like to achieve can give you a better idea of the type of loan you should be looking to refinance into. You can learn about some common reasons to refinance here.

2. Do the math

Once youโ€™ve figured out your motivation for refinancing, itโ€™s time to determine what loan will help you reach that goal. In a nutshell, if youโ€™re looking to lower your monthly payment, pay off your loan faster, or save in interest over the life of the loan, a rate-and-term refinance may be your best bet. On the other hand, if you want to take cash out or consolidate your debt, a cash-out refinance may be the answer.

Beyond the type of refinance, you should also consider the type of loan (adjustable-rate or fixed-rate mortgage), the term (length), and whether you want to take credits to offset the closing costs of your refinance, or pay points to lower your rate. Our handy rate quote tool makes it easy to understand how these numbers affect how much you can save by refinancing. Once you create an account with us, you can also create your own Loan Estimates to see the breakdown of all the costs associated with your refinance depending on which point or credit options you are considering.

3. Clean up your finances

Whether or not you get the best refinance loan possible can, in part, depend on your financial situation. For example, the higher your credit score, the better the rates youโ€™ll be able to refinance into, which can lead to significant savings over the life of your mortgage. If youโ€™d like to improve or maintain your credit score, this article offers useful tips to help you do just that.

You may also want to streamline your finances beforehand to reduce the chance of any delays derailing your refinance timeline. If youโ€™ve previously frozen your credit, unfreeze it well before you start applying for a refinance so your lender can easily check your credit score when necessary. If you have any outstanding tax liens, make sure to pay them off; otherwise, you wonโ€™t be able to refinance at all. Lastly, if you have a second mortgage like a home equity line of credit (HELOC), decide whether or not you want to pay that off as part of your refinance. Make sure to share your decision with your refinance lender as soon as possible so they can make the necessary arrangements.



4. Gather your paperwork

Refinancing your home usually involves similar paperwork as your original mortgage loan required. To make the process go as smoothly as possible, you may want to collect all of the necessary financial documents even before your lender asks for them. Youโ€™ll typically be asked to provide:

  • 2 years of personal tax returns
  • 2 years of business tax returns (if you own more than 25% of a business)
  • 2 years of W-2s or 1099s
  • 2 months of bank statements
  • Proof of any alimony or child support payments

If youโ€™re applying with Better Mortgage, youโ€™ll have the option to link your bank accounts and upload your documents digitally. As our underwriting team reviews your initial application, weโ€™ll let you know what follow-up documents we need, based on your specific financial situation.

5. Prep your home for the appraisal

Just like when you first purchased your home, your refinance lender will also request a home appraisal to determine your homeโ€™s market value. The appraised value of your home is important because it determines how much equity you have in your home relative to the homeโ€™s value. The more home equity you have, the better the rates lenders can offer you. If youโ€™re interested in a cash-out refinance, the amount of equity you have plays an important role in determining your eligibility and how much cash you can take out.

An appraiser takes several factors into consideration when determining your homeโ€™s value such as the value of comparable homes, your homeโ€™s size and features, and the current condition of the house. While itโ€™s not exactly feasible to double your homeโ€™s square footage before refinancing, it doesnโ€™t take much effort to make some general improvements to ensure your home is in its best condition.

The most important way to make the most of your appraisal is ensuring that your home meets regulations for health and safety measures, like smoke/carbon dioxide detectors and permitted additions. If you donโ€™t address these issues beforehand, the appraiser might have to re-inspect the property, which can involve extra fees, delays, or even loan ineligibility. Next, prep and stage your home as if you are about to sell it. Make any necessary repairs to broken windows, holes in the wall, etc., and get rid of any clutter. Even the smallest cosmetic changes can add up to boost your homeโ€™s value. Also, you may want to itemize any upgrades youโ€™ve made to the home and share your list with the appraiser so they can see how your home compares to other similar properties.

Get started

Refinancing can seem like a hassle, but if youโ€™re proactive and prepare ahead of time, the journey can actually be simple and incredibly rewarding. Better Mortgageโ€™s 100% digital application makes refinancing even easier. You can begin your Better refinance journey here and check todayโ€™s rates here.


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