Refinance Your Mortgage Part 4

Underwriting and Appraisals

Once you’ve submitted all of the necessary documents for your refinance to your lender, they will be begin the process of underwriting your loan.

The Underwriting Process

Once you’ve submitted all of the necessary documents for your refinance to your lender, they will be begin the process of underwriting your loan. The lender’s underwriter will verify all of the details of your mortgage application, and any additional documentation you submitted, to ensure everything is accurate and meets all the necessary requirements. Your application must meet not only the requirements of your lender, but also the requirements of the investor of your loan the bank or government institution that provides funds to your lender for your mortgage.

Usually the underwriting process takes one to two weeks, but third parties that are part of the process, like the appraiser, can possibly cause it to take longer.

Who is the investor of my loan?

The type of loan you are getting will generally tell you who is the investor of it. For VA loans, the investor is the U.S. Department of Veterans Affairs. For FHA Loans, the Federal Housing Administration is the investor. Two government sponsored institutions Fannie Mae and Freddie Mac, are most often the investors on conventional loans.

The Impact the Appraisal May Have on Your Refinance

When you refinance, you’ll need to have an appraisal, just like when you bought the home. To determine the value of the home, an appraiser will inspect it and compare it to similar homes nearby which have sold recently.

In certain circumstances, your lender won’t require an appraisal for a refinance. If the home has been recently appraised, typically within 120 days, it may be possible for the lender to waive the appraisal.

Home Inspection

What if the Home Appraises Low?

In most situations, lenders aren’t able to finance an amount greater than the appraised value of the home. This can create problems for your refinance if your appraisal comes back lower than expected. In the event of a lower than expected appraisal, you have a couple of options:

Reduce the amount of the refinance

In certain situations, like when you are using a refinance to take cash out, you may be able to simply reduce the loan amount, which means you will get less cash. If you are refinancing to change the term of your loan or reduce you interest rate, you may have to bring cash to the table to make up the difference between the appraised value and the loan amount.

Cancel the refinance

A low appraisal may simply mean that it’s not the right time for a refinance.

The ideal situation is your appraisal comes back higher than you expected, which means you have more equity than you thought and your refinance should proceed smoothly. If the appraisal matches your estimate of the home’s value, then your equity situation stays the same, but the refinance should go through. If you need to cancel your refinance because your appraisal came back lower than expected, you will probably still need to pay the appraisal fee and possibly other fees required by the lender. This is why it’s so important to do research to get a good idea of your home’s value before beginning the refinance process.

When the underwriter has approved all the necessary paperwork, your refinance is almost finished. At this point your lender will contact you to schedule the closing and go over the final numbers of your refinance.

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person signing a document

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