Steps in the Mortgage Process when you are Refinancing a Home

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iStock_000003709509SmallThe process of getting a mortgage consists of several stages and typically takes anywhere from 30 – 45 days (or more) depending on how prepared you are, what mortgage program you have selected and if it’s a purchase, the closing date may dictate how long the process will take. With this post, I’m focusing on the steps involved with obtaining a refinance (aka refi) which are slightly different than the process when you are buying a home.

The steps below may not take place in the exact order I have listed and some steps may happen simultaneously. In addition, some lenders may have different procedures with how they process a mortgage.

Prequalifying. The prequalifcation stage may consist of obtaining rate quotes from various lenders and providing lenders information (verbally or electronically) about your financial scenario. This is probably the most ideal time to “shop” for your lender (if you have not already made your selection).

You can start the prequalification or preapproval process as soon as you begin to think about a refinancing home. You can start the refi process before being ready to lock in a rate.

Application. Once you decide to proceed with refinancing, you will need to start an application with the lender. With a refinance, once you have provided the 6 points of information that define an application per CFPB, the lender will be required to send a Loan Estimate (this replaced the Good Faith Estimate in October 2015) within three business days. (See Initial Disclosures).

During the preapproval stage, you will need to provide your lender with documentation that proves your income, assets and funds for closing. Your credit report will also be ran (if it was not ran during the prequal stage).  Your application is updated with information based on the documentation provided. Your mortgage originator will also help you fine tune your selection for your preferred mortgage program.  It is likely that your information will then be ran through an automated underwriting system (aus) depending on your loan program.

Initial Disclosures. After you have a complete application, will be drafted. At Mortgage Master, these documents are prepared and provided by our compliance department. The preliminary loan package will include your Intent to Proceed and Loan Estimate (LE) as well as other disclosures. It’s important to promptly review, complete, sign and return the preliminary loan application package.

Processing. The loan processor works closely with your mortgage originator to prepare your transaction for underwriting. During this stage, title insurance and escrow are ordered (based on the purchase and sales agreement, if you’re buying a home). The processor will review and update the application and will request any additional information or documentation from  you.

NOTE: If you have any changes to your application during the process, such as changes to your employment, assets or credit, that you contact your Loan Officer immediately.

Locking…or not. Depending on what your goals and tolerance for risk is, you may or may not want to lock in your rate. Some borrowers may opt to “float” (not lock) in their mortgage interest rate. A mortgage interest rate may (and will) change until the rate is locked in. Your rate needs to be locked before an underwriter can issue final loan approval.

Once you lock in your rate, you may have additional documents, including a revised Loan Estimate, pertaining to the lock to sign and return to the mortgage company.

Home Owners Insurance. You will need to provide your lender with the contact information of who will be handling your home owners insurance. The lender will request a binder from your home owners insurance provider. This needs to be done as soon as possible as the home owners insurance premium is part of the mortgage payment (unless you are electing to pay the home owners insurance separately).

Lenders need to have your home owners insurance providers information, even if you are waiving your reserve account.

Appraisal. The appraisal is typically ordered after we have preliminary loan approval and supporting documents. When the lender receives the appraisal, it is reviewed by underwriting and then provided to the borrower.

If the appraisal comes in less then the expected value of the home, the lender will base the loan to value on the appraised value. In the event or loan amount or terms of the mortgage change, you may receive revised disclosures, including an updated Loan Estimate. If the appraisal comes in higher than expected, it’s possible that the pricing/terms of the refinance may be improved.

The appraisal may also have items that need to be addressed. A popular item in Washington state is missing carbon monoxide detectors and/or missing earth quake straps on the water heater. Please make sure you get those CO detectors installed in the home BEFORE the appraisal is ordered.  

If the appraiser calls for items to be repaired or re-inspected (for missing CO detectors or water heater straps, etc.) on the appraisal, a re-inspection (aka 442) may be required.

Underwriting Approval. Once processing has a complete loan application with supporting income and asset documents, they will submit the loan to underwriting. Underwriters will review the application, supporting documentation and lender guidelines. They will then either issue a “conditional approval or possibly deny or suspend the file. Assuming the loan is approved 🙂 their may be “conditions” to the approval that need to be resolved before they can issue a “clear to close”.  Examples may include documenting the source of a large deposit,  writing a letter explaining employment history, providing updated paystubs, or missing pages of a bank statement.

After the initial underwriting approval (conditional approval) is issued, the file is sent back to processing to work on  getting the items requested by the underwriter.

There are two main types of underwriting conditions:

  • prior to doc (ptd) = items that must be resolved before docs can be ordered.
  • prior to funding (ptf) = items that must be resolved prior to funding (closing).

Review and re-submission of conditions. The processor and/or mortgage originator will work on obtaining the underwriting conditions. This often means that you, the borrower, will be hearing from the mortgage company with (hopefully a short) list of additional items that are needed. This is not unusual… and you’ll probably feel like you’ve been asked for the same thing over and over again. The mortgage process is redundant – there is no way to sugar coat it.  The good news is that by this time, you are almost finished!

Once the processor has obtained everything from the underwriters conditional approval list, the file is sent back to underwriting for review. If the documents appease the underwriter, final approval is issued.  Sometimes, the documents provided may trigger additional questions or requirements from an underwriter, in which case, they issue a revised approval with new conditions to be satisfied. This will continue until final approval is reached.

If you have a second mortgage or HELOC/Home Equity Line of Credit… if the second mortgage/heloc is being paid off with the refinance, the escrow company will request a payoffs. If the second mortgage/heloc is not being paid off, the lender will need to request that the second mortgage/heloc to be subordinated. The refinance cannot close until the second lien holder/heloc approves the refinance and allows their lien to be resubordinated.

Final approval. Oh happy times!!! This means that at the very least, all prior to doc conditions have been met. There may or may not be prior to funding conditions remaining. At this point, loan documents can be prepared.

Closing Disclosure. Once we have final loan approval, a Closing Disclosure will be prepared and provided to all borrowers on the transaction. The Closing Disclosure is a newer document that is replacing the HUD-1 Settlement Statement. Once the Closing Disclosure is received by the borrower, there is a three business day waiting period BEFORE the home buyer can sign their loan documents. It is CRITICAL that the borrowers sign and return the Closing Disclosure to the lender as soon as possible so that the lender has evidence as to when the borrower signed the Closing Disclosure and when the wait period can start. The three day waiting period CANNOT be waived and has the potential of delaying the closing if not executed and provided to the lender in time. The three day wait period is in addition to the right of rescission.

Docs. After the lender receives the signed Closing Disclosure from all borrowers, they can begin preparing loan documents. Once the loan documents are prepared, they are delivered to the escrow company.

Signing. Escrow typically likes to wait until they have received loan documents from the lender before scheduling an appointment to sign. As someone who worked in the title and escrow industry for many years, I don’t blame them! This is to avoid having to reschedule appointments and closers typically have pretty tight schedules.  Plan on your signing to take at least an hour – possibly longer depending on how many questions you may have.

Signing typically takes place 1-2 days before closing.

Right of Rescission. After signing a loan documents for a refinance, unless the property is an investment property, a three day right of rescission must take place. Basically, three postal days must pass after signing before the loan can close. This wait period is in addition to the Closing Disclosure wait period.

Final document review. Once you have finished signing, the escrow company will send the documents to the lender for review and the documents to recorded (the deed of trust and deed, if it’s a purchase) to the recorder’s office in the county the property is located in.

Re-verification. Just prior to funding, the lender will check with employers to makes sure nothing has changed with the borrower’s job status and a soft pull is done on the credit report to confirm that no changes to the credit profile (no new credit or large purchases on existing credit accounts).

If there has been changes to employment or credit, the transaction may be delayed as the new changes may have to be approved by underwriting. It’s important to remember that your financial profile should reflect your final loan application.

Funding and recording. Once your employment and credit have been re-verified, the lender will contact the escrow company to “balance” funds. This means they are making sure that everything is correct with the Closing Disclosure down to the penny. Once they balance, the lender will wire funds to escrow (this takes longer than you would expect in this day and age) and provide escrow with instructions for recording.

Recording takes place at the county where your home is located. The deed of trust (mortgage) is recorded and becomes public record.

Closing. Yes!!! The moment we have all been waiting for!! Once your transaction has funded and recorded, you are officially “closed”. If you are receiving cash out with your refi, the escrow company will either provide you with a check or wire the funds to you.

NOTE: If you had taxes and/or insurance included in your monthly mortgage payment, two to three weeks after closing, you will receive a refund of the balance of your escrow reserve account from the mortgage servicer that was paid off from the refinance.

PS: If you are considering buying or refinancing a home located anywhere in Washington state, I am happy to help you!

Comments

  1. Ginny Justiniano says:

    Thank you so much for this great article. It painted a very accurate picture of what I just completed with our refinance. Appreciate you posting it.

  2. I am in refinancing process and wondered very much why it takes forever for the lender to do anything… I googled and found your article that is so enlightening. I now at least have good understanding on what had been going on. Excellent article. Thank you!

  3. Great article, thanks Rhonda. Just signed my CD, dropping monthly payments by $161 with $0 in closing costs. Just had to put a little bit of cash towards principal and first half of this years property tax.

  4. This was a very informative article. We are currently going through the conventional loan refinance process and this article pointed out everything that’s been happening along the way, almost to a tee. The only other thing we have had to wait on is the IRS verifying our past 2 years’ tax returns. Unfortunately the bank put the wrong address on the form so the IRS wouldn’t release the info until they resubmitted it with our correct address which took an additional 2 weeks. Frustrating but hoping it’s smooth sailing with our closing soon. Thanks again for giving us this blueprint of what to expect!

  5. Paula Cruz says:

    Refinancing home – I started the refinance process on Sept 28, 2016. It has been over 2 months since starting the process. I was promised that this would close before the end of November. That date came and went. I now owe the taxes, etc. Since that time passed, I have to pay an extra $3k on my loan, additionally, I will not be receiving the original amount of cash back because of the extra fees (taxes, etc.). They have drug their feet and it is now December 17.and the loan closed Tuesday, December 13 and still no funds to me or anyone else (old mortgage co., credit cards, etc). I tried calling the lender today with no avail. Not reaching anyone in the lending office is an ongoing problem. There never seems to be anyone there. I leave messages, no one returns my calls. I’ve tried to call cell phone #s that were provided in the beginning also with no avail. I have had nothing but problems and a great deal of stress because of this lender. How long can this lender keep us hanging after closing? I am now in a position that I can not back out because it would cause me to be behind on house payments as well as the past due taxes, etc. I believe they delays were intentional. I am considering consulting with a lawyer.

    • Hi Paula, that sounds terrible :/ Transactions are taking longer than usual because of the appraisal crisis. However, it’s pretty incredible that you cannot find anyone at the lender’s office to talk with you. You should have an assigned Loan Officer. Our of curiosity, are you working with a local lender, bank or credit union?

  6. This article has been a good source of information for my personal refinance process. Thanks for sharing!

  7. Nanda Morris says:

    Hello,
    Can you tell me if the “Good Faith Estimate” document includes a closing date for the loan?

    • Hello Nanda, the Good Faith Estimate is now a “Loan Estimate” or “Closing Disclosure” depending on where you are at with your transaction. They should include an estimated closing date. If you have question about when you are closing on your mortgage, you should contact your loan officer.

  8. Phillip says:

    Rhonda, when we close does the lender send the checks to me to Pay off mortgage and the other bills in the refinance.

    • Phillip, the lender will provide funds to escrow to pay off the mortgage. They may require that escrow pays off the “other bills” — you need to check with your loan officer to find out how this will be handled.

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