Personal Finance

First-Time Mortgage Refinance Guide

Name: Guide to a First-Time Mortgage Refinance
Brand: Axos Bank

Nov 30, 2022

Getting a home loan can feel like an epic feat. If the process is still fresh in your mind, you may shy away from even considering a mortgage refinance. But here’s the good news – refinancing your home loan doesn’t have to be complicated.

Follow These 6 Steps for a Smooth Home Loan Refinance

We’ve gathered all the details so you can confidently reach your home finance goals.

1. Determine Your Goal

First things first: You’ll want to set a specific financial goal. This will help you narrow your options and evaluate the costs to confirm whether refinancing makes financial sense.

Reducing your interest rate is an obvious goal. But there are many other possible goals, including:

Improving monthly cash flow
Removing private mortgage insurance (PMI)
Locking in a fixed monthly payment
Recapturing cash from your down payment
Tapping into accrued home equity to pay for home projects, large expenses, or other debt

Read this related article to learn more about how a mortgage refinance can help you save.

2. Research Your Lender Options

You’re not tied to your current lender or loan type when you refinance your mortgage. So, start thinking about your initial loan experience to determine what went well, what didn’t, and what aspects of your loan you’d really like to change.

Each lender has its own process, products, pricing, and guidelines.

Price is an obvious factor when selecting a lender, but service is also important. Look for a lender who consistently receives high ratings from customers and third-party organizations, like The Ascent, a Motley Fool Service. Go to the source to validate reviews. For example, you can check out Axos Bank customer reviews on Zillow.

Of course, you will want to review mortgage rates. Rates fluctuate frequently, so be sure to sign up for alerts, like Axos Bank’s Rate Watch, so you know when it’s time to act. Our options include receiving emails on a regular basis and alerts based on specific rates.

You’ll also want to consider lender guidelines. Some add extra requirements on top of the standard program guidelines. These requirements are known as overlays. Here at Axos Bank, we’re able to offer mortgages with very few overlays. This helps you secure the loan you need without all the red tape and tricky requirements.

3. Get Organized

Preparation is the key to a quick and easy refinance – especially in a volatile rate environment, when you’ll want to act fast to lock in the best rate. Speed things up by having all the important information and documents gathered in advance.

Just as with your initial purchase, be prepared to provide income, asset, and debt information:

Income: paystubs, W-2s, 1099s, tax returns, etc.
Assets: bank, retirement, and investment statements
Debt: statements and other documents related to your credit cards and other loans you’re paying off
Home purchase: final closing disclosure and settlement statement
Letter of explanation: explain any recent changes in your credit, employment, or assets

You won’t have to repeat all the required home inspections, but a new appraisal will likely be needed. The appraisal will be arranged by your lender, so there’s nothing for you to do in advance. If you’re curious, you can use a home valuation estimator to see how your home value has changed.

4. Avoid Potential Financial Hang-Ups

Your refinanced mortgage will be a fully underwritten loan, with your financial health impacting the rate and terms of the loan. This includes:

Credit: Take the time to check your credit in advance so you can resolve any inaccuracies that may affect your chances of approval.
New debt: Don’t apply for other new loans or credit cards while your refinance application is in process.
Financial inaccuracies: Don’t guess when you’re filling out your refinance application – make sure you’re providing all the details and that the information is accurate.

5. Anticipate Your Out-of-Pocket Costs

With any mortgage transaction, you can expect certain fees. These include third-party fees for appraisal, recording, and title services. Many lenders and mortgage brokers also have a lender fee – also known as an administrative, application, origination, or processing fee. If you’re looking to minimize the fees (who isn’t?), consider refinancing through Axos Bank to take advantage of our $0 lender fee.

You may be presented with discount points so you can “buy down” your interest rate. This is an extra up-front cost but may save you in the long run by lowering the lifetime interest of the loan.

Aside from the appraisal fee, many of these costs can be rolled into your new home loan. This may depend on your accrued home equity and the lender’s loan-to-value ratio (LTV) requirements.

6. Keep an Open Line of Communication

Respond quickly to your lender’s communications so you don’t miss out on a great rate. They’re working hard on your behalf but can’t lock in your loan until all the details are delivered.

If an escrow account is involved, you’ll need to provide some additional details – especially if you’re refinancing from one institution to another. Your lender will coordinate the details, but you’ll need to let them know how you want to receive unused funds from your current account and how you’re funding the new account, as well as confirming that the new lender has received the correct property tax and property insurance information.

First-Time Home Refinance Frequently Asked Questions

Still have questions? You’re not alone. Here are some common questions other homeowners have when it comes to refinancing their mortgage.

How soon can I refinance my mortgage?

While most lenders prefer for you to wait at least 6 months, there’s no actual required waiting period between initial home purchase and mortgage refinance. The timeline ultimately depends on your lender, your property equity, and other considerations, like your credit history and outstanding debts.

If you’re choosing to do a cash-out refinance to utilize home equity, there may be additional requirements. Be sure to ask your lender in advance so you can appropriately time your refinance.

Is there a limit to the number of times I can refinance my home loan?

No! In fact, many homeowners will refinance several times during their property ownership to meet various financial goals.

Some people even refinance more than once in a single year if there are big rate drops, like what occurred in 2003 and 2020. In fact, Freddie Mac reports 16.6% of 2003 refinances and 10.1% of 2020 refinances were same-year repeats.

Is it really worth it to refinance my mortgage?

Refinance savings can really add up! Even what may appear to be a small amount monthly can turn into significant savings over time.

You’ll want to calculate your refinance breakeven point to determine if the timing is right for a mortgage refinance. This involves looking at how much you’ll save with your new monthly payments versus the costs you’ll pay for the refinance.

If you’re worried about resetting your payoff timeline, remember you can always pay extra toward the principal each month to achieve your original payoff date. Or, if you’re focused on freeing up monthly cash flow, you can periodically pay more toward principal when you receive a bonus or tax refund.

Axos Bank Is Here for Added Support

If you have additional mortgage refinance questions or aren’t sure if a refinance is right for you, don’t hesitate to reach out with your questions. Our expert team of mortgage professionals is available at 888-546-2634 to provide a free, no-obligation consultation. They’ll review your current loan and your goals to help determine how you can optimize your mortgage.