Refinancing is on the agenda for many homeowners these days. I recently refinanced our home, and unfortunately, I learned a lot. I say unfortunately because it would have been far less stressful if I’d already known these things. You see, although we refinanced, the mortgage was procured before I was in the picture, which means that this refinance process was the first mortgage-related thing I’d ever gone through. Although I should have expected that it’s quite a process, I was incredibly naive about just how much information the bank uses to determine if you’ll be able to refinance.
Our bank was great, but my lack of knowledge made everything highly stressful for me. So today, I’m going to give you some home refinancing tips to help make the process far less stressful and ensure that you get through it with little to none of the headaches that I had when I did it.
Home Refinancing Tips You Need to Know
These tips apply to both home refinancing and procuring a new mortgage. Banks require the same information for both refinancing and mortgaging because they are essentially the same thing. This brings me to my first tip.
1. Refinancing and Mortgaging are Essentially the Same Things
This is not a tip so much as it is a heads up. One thing I didn’t realize when beginning the refinancing process is that refinancing is essentially getting a new mortgage. When you refinance your home, you aren’t altering your current mortgage. You’re actually creating a new mortgage for the amount left that you owe on your home. The old loan is closed out, and you get a new loan at the home’s remaining mortgage dollar amount and your new mortgage interest rate. This is why banks require just as much information as they do when you procure a mortgage on a home for the first time.
2. You Need Income on Paper
This is the biggest of my home refinancing tips, and I learned it the hard way. Banks don’t just look at your income. They look at your taxes, as well. They’ll usually ask for the past two years’ returns. This was problematic for me because I own my own business, and I run everything through an S-Corporation. The amount of personal income I show is minimal. This became a HUGE issue throughout the entire refinancing process. In fact, we had to go back and amend our taxes to show more income on the personal side of things.
The moral here is that you can’t just show banks sales receipts or PayPal statements that display income. Your taxes have to reflect it. Consider this if you’re a business owner in the same position as I am. You may want to amend your taxes to show more income to get that refinance.
3. A Monthly Payment Calculator is Key
A monthly payment calculator is of utmost importance in the home refinancing process. Whether you’re getting a mortgage for the first time or refinancing, you’ll need this tool. It’s especially important if you might have to amend your taxes as I had to do. You’ll need to know how much your monthly payment will be so you’ll be able to tell if A: you’ll be able to afford the new home or B: If you show the requisite income on your taxes to refinance your current home. I really like the basic and advanced monthly payment calculators from Mortgage Calculators. They’re easy to use and give you tons of information.
As an aside, amending your taxes is perfectly legal, as long as you followed the law, to begin with. Choosing NOT to take deductions or to show more income than you have to only give the government more money. They won’t mind.
4. It Takes Longer Than You Think
Your mortgage provider will most likely tell you that the entire process won’t take long at all, maybe 30 to 45 days. If something goes wrong, it can take much longer. We had a series of setbacks, including three different appraisals. In the end, between waiting to secure an appraisal, undergoing underwriting twice, and various other obstacles, our refinancing ended up taking three months from start to finish. So do not wait until the last minute to refinance if you’re under any kind of time constraint. Always be prepared for unexpected eventualities.
5. It’s Not as Scary as You Think
If you’ve gotten this far, you’re probably thinking, “Refinancing is a terrifying experience.” It’s not as horrible as you might think if you’re prepared, which is why I’ve shared my experience. I was on the verge of pulling out my hair for three solid months, but in the end, it all worked out – just like my mortgage broker told me it would. The thing to remember is that if you prepare yourself, even if things don’t go 100% smoothly, in the end, no mortgage lender is going to tell you that you can afford to get a mortgage or refinance if you can’t. They don’t want to waste your time.
Straightforward Home Refinancing Tips
The above tips are fairly straightforward. That’s because the entire process really is a fairly point A to point B experience if you know what to expect. Remember to have those tax returns for the past two years in order, use a monthly payment calculator to see what kind of payment you can afford, and remember that your mortgage lender wouldn’t tell you that you could afford to refinance or mortgage if you couldn’t.