Refinancing — the steps, the documents, and what the law requires

The kinds of refinance

What each one is. Which one fits is a conversation, not a page.

• Rate and term

  The existing mortgage is replaced with a new one on different terms — a different rate, a different length, or both. No additional cash is taken out, and the new loan amount is the existing balance plus any costs that are financed.

• Cash-out

  The existing mortgage is replaced with a larger one and the difference is paid to the borrower in cash. The amount available depends on the property’s appraised value and the programme’s limit on how much of that value may be borrowed.

• Streamline — FHA and VA

  Simplified routes for a borrower who already holds an FHA or VA loan, typically with reduced documentation and in some cases no new appraisal. The VA version is called an IRRRL, the Interest Rate Reduction Refinance Loan. Many people entitled to one do not know it exists.

• Shortening the term

  A rate-and-term refinance that moves the loan to a shorter length — thirty years to twenty or fifteen. The monthly payment usually rises and the loan is repaid sooner.

The steps, in order

Roughly what happens at each one and whose move it is, so you can see where a file is. No timings — those depend on the lender, the appraiser and the title company, and a page that guessed at them would be making promises on their behalf.

• 1. The first conversation

  What you are trying to achieve, and what you hold now — the balance, the rate, the term, how long you intend to keep the property. Nothing is applied for at this stage.

  You and a licensed mortgage loan originator.

• 2. Application

  The Uniform Residential Loan Application, Fannie Mae Form 1003. It records income, employment, assets, debts, the property and how you occupy it.

  You, with help if you want it. It becomes a complete application once six pieces of information are in: name, income, Social Security number, property address, estimated value and loan amount.

• 3. Credit pulled

  A credit report is drawn from the bureaus. It establishes the scores and shows the debts that will be counted against your income.

  The lender, with your authorisation.

• 4. Documents gathered

  Income, assets, the current mortgage, insurance and taxes. The list is in the next section.

  You. This is the step most under your control and the one that most often decides how long the whole thing takes.

• 5. Appraisal ordered

  An independent appraiser inspects the property and reports an opinion of value, which sets how much can be borrowed against it. Some streamline routes and some automated valuations do not require one.

  Ordered by the lender through an independent management company. Neither we nor you may influence the result, and the appraiser’s schedule is outside anybody’s control.

• 6. Processing

  The file is assembled and checked for completeness — employment verified, figures reconciled against the documents, title and insurance ordered.

  A processor at the lender.

• 7. Underwriting

  An underwriter reads the whole file against the programme’s rules and decides whether it may proceed, and on what conditions.

  The lender’s underwriter. Not us, and this is the step where a file waits.

• 8. Conditions

  Almost every approval arrives with conditions — a document that needs a clearer copy, a letter explaining a deposit, an updated statement because time has passed. They are ordinary and not a sign of trouble.

  Mostly you, and answering them the same day is the single fastest thing you can do at this stage.

• 9. Clear to close

  Every condition is satisfied and the lender confirms the loan may close. The closing is scheduled from here.

  The lender.

• 10. Closing Disclosure

  The five-page statement of the final terms and every cost. You must receive it at least three business days before closing — see the legal section below.

  Issued by the lender. Read it against the Loan Estimate you were given at the start and ask about anything that moved.

• 11. Signing

  The note, the mortgage and the closing documents are signed, usually with a notary or at a title company, and sometimes at your home.

  You, with a closing agent or notary.

• 12. Rescission period

  On a principal residence there is normally a three-business-day window after signing in which the loan can be cancelled. Nothing is disbursed during it. The exceptions matter and are set out below.

  Yours, and nobody can shorten it.

• 13. Funding and disbursement

  The new loan funds. The old mortgage is paid off, any other payoffs and costs are settled, and anything remaining on a cash-out goes to you.

  The lender and the closing agent. Your first payment on the new loan is usually the month after next rather than next month.

The documents

The legal prerequisites

What the law requires of a refinance, and what has to be true about the property before one can close. None of this is a hurdle we set.

• You must be on title

  The people borrowing have to be the people who own the property. A title search will show how the deed actually reads, and a name that is misspelled, missing, or belongs to somebody who has died has to be resolved before a refinance can proceed. That resolution is a legal process in its own right — a corrective deed, a probate matter, a quit claim following a divorce — so it is worth checking the deed at the start rather than discovering it in week four.

• Loan Estimate within three business days

  Once an application is complete, the lender must deliver a Loan Estimate within three business days. It sets out the estimated rate, payment and closing costs on a standard form so that offers can be compared against each other. This is TRID, under Regulation Z.

• Closing Disclosure at least three business days before closing

  You must receive the final Closing Disclosure no fewer than three business days before the loan closes, so there is time to read it. Most corrections made in that window do not restart the clock — only three things do: an APR that moves outside tolerance, a change of loan product, or a prepayment penalty being added (12 CFR §1026.19(f)(2)(ii)). It is worth knowing that, because the fear of restarting the clock stops people asking about a figure that looks wrong.

• The right to cancel, and its real limits

  On a loan secured by your principal dwelling you generally have three business days after signing in which to rescind, and no money is disbursed until it passes (Regulation Z, 12 CFR §1026.23). Two limits are commonly got wrong. A refinance with your existing lender is largely exempt — the right attaches only to new money advanced beyond the payoff, the earned unpaid finance charge and the costs of the refinancing (§1026.23(f)(2)). And it does not apply at all to a property that is not your principal dwelling, so there is no rescission period on an investment property. For this purpose Saturdays count as business days and Sundays and federal holidays do not.

• Clear title

  A title search is carried out and a title insurance policy issued. Anything recorded against the property has to be dealt with before or at closing: an older mortgage never released, a contractor’s lien, a judgment, unpaid property taxes, or a PACE assessment for energy or storm improvements. A PACE assessment is worth naming because it sits on the tax bill rather than the deed, so people do not always know they have one, and many lenders require it paid off at closing.

• Homeowners insurance in force at closing

  A current policy has to be in force on the day of closing, with coverage the lender finds acceptable and the new lender named as mortgagee. Where the premium is paid through escrow it is collected at closing. A policy that lapses or is cancelled mid-process will stop a closing.

• Flood determination, and insurance where it applies

  Every property is checked against the FEMA flood maps. Where it sits in a special flood hazard area, flood insurance is required by federal law for the life of the loan and must be in force at closing. In Broward County a large number of properties fall in a zone that requires it, so this is a real step here rather than a formality.

• Occupancy declaration

  You declare whether the property is your primary residence, a second home or an investment property, and you sign that declaration. It is not an administrative detail: it changes which programmes are available, the terms, the amount that may be borrowed against the value, and — as above — whether a rescission period exists at all. Declaring an occupancy that is not true is mortgage fraud.