Mortgage Refinance Application Process: 13 Steps to Refinancing

If you’ve bought a home with a mortgage, you know how the refinance application process works. It’s nearly identical to financing a purchase, minus all the complexities of buying a property.

If you’ve inherited a home, refinancing might be your first experience getting a mortgage. Don’t worry: People with no experience do it every day. Here’s what you can expect.

How Does Mortgage Refinancing Work?

When you refinance, you get a new mortgage. Your lender uses the new loan to pay off your old loan.

To refinance, you’ll need to have positive equity in your home, meaning you owe less on your mortgage than your home is worth. If your home’s value has decreased and you owe more on your mortgage than your home is worth, you likely won’t be able to refinance.

There are a couple of exceptions, though: If your existing loan is an FHA or VA loan, you may be eligible for an FHA streamline refinance or a VA streamline refinance (VA IRRRL).

You can refinance with any lender, not just your current mortgage servicer (which might not be the same company you closed your mortgage with). In fact, submitting applications with multiple lenders, just as you might have done when you bought your home, is the best way to secure the lowest rates possible. Don’t assume your existing servicer will give you the best possible terms.

How Long Does the Refinancing Process Take?

Refinancing typically takes a few weeks. Things that can affect how long it takes include:

• Demand. When lenders see a surge in mortgage applications and don’t have the staff to keep up, the process will take longer.
• Responsiveness. If you drag your feet whenever your loan officer asks for a document, closing will take longer.
• Lender. Some lenders specialize in fast closings.
• Other liens. If you have a home equity loan or HELOC, that lender must agree to be in the second lien position on your new loan.
• Loan type. If you’re getting a conventional conforming mortgage, you may be more likely to close quickly.
• Employment. W-2 employees may be able to close quicker than business owners and independent contractors.

On average, it took about 45 days to refinance a mortgage during the six months ending in August 2023, according to ICE Mortgage Technology, which provides software and services to lenders.

Refinance Process Timeline

The refinancing timeline below can help you prepare for what’s involved in the process. Although it can appear to be overwhelming, it’s far less work than buying a home with a mortgage.

1. Define Your Goals

Common reasons to refinance your home are to lower your interest rate, shorten your loan term, lengthen your loan term or reduce your monthly payment.

Another reason to refinance is to get out of an FHA loan to stop paying mortgage insurance premiums. This can give you more room in your monthly budget, long-term cost savings or, ideally, both.

If you have an adjustable-rate mortgage, you might want to refinance into a fixed-rate mortgage so your payments will be stable and predictable.

If you want to tap your equity and replace your first mortgage, a cash-out refinance might be right for you (but you could also consider a home equity loan or line of credit).

2. Check Your Credit

You should check your credit with all three major credit bureaus and your credit score with at least one. You can get this information for free from sources such as annualcreditreport.com and credit card issuers.

Knowing what’s in your report may help you avoid surprise denials or rate offers.. If you take this step a few months in advance, you’ll have time to work on your score and correct errors if you find any.

3. Search for Lenders

Before you start applying to refinance your mortgage, research lenders to ensure you’ll be doing business with a reputable institution.  Lenders might have a reputation for poor customer service, above-average costs or not offer the mortgage product that best suits your situation.

One place to start your search is with a list of the best mortgage refinance lenders. You can also expand your search to small or midsize credit unions, regional banks and local banks.

4. Get Preapproved

Getting a mortgage preapproval to refinance doesn’t mean you’ll get fully approved. However, if you try multiple lenders and can’t get preapproved with any of them, you might need to improve your credit, increase your income, reduce your debt or build more equity before proceeding.

5. Gather Financial Documents

At a minimum, these are the documents lenders usually want to review when you apply for a mortgage:

• Two most recent bank statements
• Two most recent investment account statements
• Two most recent pay stubs (or other proof of income if you’re self-employed or retired)
• Two most recent signed and filed annual tax returns
• Most recent property tax statement
• Current homeowners insurance declarations page

It wasn’t long ago that you had to hand-deliver these documents or send them by fax, overnight delivery or same-day messenger service. Now, you can often submit them electronically through a secure online portal.

6. Apply with Multiple Lenders

Getting preapproval isn’t enough to make the decision on whether you’ll want to go through with a refinance. You’ll need to submit a complete application for approval based on the lender’s review of your financial documents and property information.

Once you have the necessary documentation, applying with multiple lenders won’t take much more time than applying with one lender. You’ll likely get multiple offers, which will help you get a better deal. It could be the least amount of work you’ll ever do to save yourself thousands of dollars.

To save time, consider working with a mortgage broker.

7. Compare Loan Estimates

After submitting your loan applications, any lenders that approve you will each give you a formal loan estimate laying out the loan type, term, interest rate, monthly payment, closing costs and other essential details.

Compare these estimates to see which offer best meets the refinancing goals you identified in step one. You can even use them as leverage to negotiate with your preferred lenders for a better rate or lower closing costs.

You’ll also want to make sure your breakeven period is reasonable. How many months will it take before your savings from refinancing surpass the costs? Use our mortgage calculator and add your loan costs by clicking “More options” to make the math easier.

8. Choose Your Lender

After receiving one or more loan estimates, you’ll have 10 business days to choose a lender and signal that you want to proceed.

You don’t have to tell the other lenders that you’ve decided not to proceed, but it’s courteous to do so.

9. Communicate with Your Loan Officer

If you didn’t lock your rate when you applied, your loan officer should be keeping you informed about any interest rate changes. Know what rate you’re trying to get so you can be ready to lock it in when the time is right. Remember that no one, including your loan officer, can predict where rates are headed.

As the mortgage underwriter reviews your file, they may have questions about bank deposits, credit report items or tax return deductions. Keep an eye out for phone calls, texts and emails from your loan officer so you can respond to these requests promptly and keep your closing on track.

10. Review Your Closing Disclosure

The closing disclosure is a five-page document your lender must give you at least three business days before you sign your loan documents. Review it line by line to ensure the loan amount, term, type, interest rate and other details are correct. Compare the lender fees and required services to those on your loan estimate; the items and amounts should be identical.

11. Close on Your New Loan

Set up a meeting with anyone who needs to be involved in your loan closing, such as your escrow agent, notary public or real estate attorney.

Review your loan documents carefully and ensure the terms match the ones on your closing statement.

If your loan is covered by Regulation Z (discussed below), it will be funded on the fourth business day after you sign the paperwork.

12. Keep Your Payoff Paperwork

Once your existing loan is paid, both you and your county recorder or secretary of state will get a notice of lien release and mortgage satisfaction. These legal documents prove that you no longer owe money on your old mortgage. Keep copies if there’s a question about your mortgage debts or property title.

13. Recheck Your Credit

Within a few weeks, your credit reports should show your old mortgage as paid in full. They should also show your new mortgage. If you see any errors, contact your mortgage servicers to straighten things out. If that doesn’t work, you can also submit disputes with the credit bureaus or submit complaints to the Consumer Financial Protection Bureau.

How To Cancel a Refinance Application

Canceling a refinance application is simple: Tell the lender you’ve decided not to proceed and ask them to close your file. You don’t have to give them a reason or a chance to talk you out of it. That said, if you still want to refinance but are unhappy with the service you’ve received so far, it may be worth speaking up and seeing if they’ll make things right.

If you cancel, any application or appraisal fees you’ve already paid likely won’t be refundable unless the appraisal hasn’t been performed yet.

If the lender has only given you a loan estimate, you don’t have to notify them that you’re canceling your application: They’ll cancel it automatically. However, your loan officer would probably appreciate if you notified them that you’re canceling the application.

How To Cancel a Refinance Transaction

What if you change your mind after you’ve signed the paperwork to close on your refinance loan, though?

Regulation Z, a federal consumer protection law, gives you the right to cancel your refinance transaction when you’re refinancing your main home with a different lender. It also applies when you’re doing a cash-out refinance with your existing lender.

You’ll have to act quickly, though: You’ll usually have just three business days to exercise your right of rescission. Business days are Monday through Saturday, excluding federal holidays.