Step by step guide to refinancing

ATLANTA (FOX 5 Atlanta) - As of today, you can likely refinance your home with a new 30-year loan for around 4 percent fixed rate.  If you’ll accept a higher payment, you can select a 15-year term and likely get a rate around 3.5 percent. 

Millions of Americans could save a huge amount in interest costs, but simply won’t go through the hassle of refinancing.

Real estate expert John Adams says you have nothing to fear but fear itself. 

Refinancing your home loan is a multi-step process. Here are the eight refinancing steps outlined at bankrate.com as well as John's own explanation:

Here’s a guide to help you get started:

1. Set a clear financial goal.  When considering a mortgage refinance, focus on lowering your monthly payments or interest rate without tacking on more years to repayment, if possible.

Your primary goal should be to reduce the overall interest expense for the remainder of the life of your loan.  A secondary goal might be to tap into your home equity to replace other higher-interest debt or to finance a major purchase, like a car or a vacation.

Because refinancing is such an important life step, I recommend that you talk with your CPA to make sure that this financial move fits in with your other monetary goals.

1. Check your credit score and history.  The higher your credit score, the better refinance rates lenders will offer you. Look for reporting errors and issues you can resolve to help boost your score. The easiest place to check your credit scores is at CreditKarma.com or CreditSesame.com.  A credit score of 760 is considered near perfect, but don’t give up even if your score is under 600.  In some circumstances, a score as low as 500 might get you a loan that might improve your situation. If your credit score is hurting your ability to refinance, then go to myfico.com and learn how credit scores are calculated, then set a course to improve your score. But remember that rates may have risen by the time you are successful. You may be better off accepting a slightly higher rate and refinancing now rather than waiting for your score to improve.
2. Estimate how much equity you have.  Your EQUITY is the difference between how much your house is worth today and how much you owe on it.  This is the amount you can potentially borrow by refinancing. First, check your mortgage statement to see how much you owe on your loan balance. Next, check online home search sites to get a rough idea of your home’s value, or ask a real estate professional to run a market analysis. The greater the percentage your equity represents, the easier your loan approval will be. In some cases, you can refinance a conventional loan with as little as 5 percent equity. If your equity is less than 20 percent, though, you’ll likely pay steeper rates and loan fees, plus private mortgage insurance.
3. Shop & compare among multiple lenders.  In addition to finding the best refinance rate, pay attention to the fees associated with the transaction. Find out whether those costs will be due upfront or rolled into your mortgage. Lenders sometimes offer “no-closing cost loans” but charge a higher interest rate or add to the loan balance. Once you choose a lender, discuss when it’s best to lock in your rate. Seek lender recommendations from sources you trust, like your attorney or your CPA.  Another good place to begin is your local community bank or credit union.  Also, if you are comfortable with online shopping, you may save money with an online lending source.
4. Be transparent about your finances.  Gather recent pay stubs, federal tax returns, bank statements and anything else your lender requests. Your credit and finances will be reviewed, too, so disclose all of your assets and liabilities upfront. Remember that you are probably making an application to a federally-chartered lending institution and that making false statements in your application is a federal crime.
5. Prepare for the appraisal.  Most lenders may require an appraisal to determine the home’s current value for a refinance approval. Let the lender know of any improvements or repairs you’ve made since buying your home that might add to its value. I also recommend that you have a very good idea of what your home is worth BEFORE you begin the refinance process.  By doing so, you can share appropriate recent sales with the appraiser when he or she arrives. A knowledgeable real estate professional can supply you with a market analysis that can be very helpful.
6. Come to closing with cash, if needed.  The lender is required to disclose how much cash you will need at settlement. You might be able to finance those costs, but you’ll likely pay more for it through a higher rate or loan amount. Store copies of your closing paperwork in a safe location (including online) and find out how to make your new mortgage payments. I recommend that you obtain a copy of your settlement documents 24 hours prior to the closing so you’ll have time to review them with the closing attorney.  You are also welcome to bring your own attorney to the settlement, but doing so will be at your own expense.
7. Keep tabs on your loan.  Don’t be surprised if your lender sells your loan to another lender shortly after closing or even years later.  That means switching mortgage payments to a different company. The transfer of loan servicing is a common practice among lenders, and often results in errors in receipt of on-time payments. And late payments can negatively impact your credit score and credit report.  Watch for mail from your lender notifying you of these changes.

BOTTOM LINE: Lock in these rates for as much as you can and for as long as you can right now. If your current loan has less than 20 years remaining, refinance now with a 15-year program.