Complicated. Stressful. This is what the mortgage process feels like to a number of borrowers in a certain survey, The Washington Post reported. But it was the sheer number of documents that go with mortgaging that overwhelmed most of the respondents per the report. Being a mortgage transaction, expect to get some major paperwork done for your refinance application. Although it’s possible to streamline this process and do away with some documents.
Documenting Changes in Your Finances
When you refinance, you will be required to submit several documents for verification of the following:
- Income
- Employment
- Financial assets and reserves
Regulatory and Compliance
There are two main reasons why lenders require documents in a refinance transaction.
- They want to check your ability to pay off the loan.
- They want to comply with rules and regulations governing mortgage origination.
A refinance is a new loan. It’s basically taking out a new loan to replace your old mortgage which you have paid off using your new loan. Just like when you took on your original mortgage debt, expect to be subjected to a similar process of underwriting and these documents will aid in the lender’s decision.
Indeed, so much can change in your finances in the last month or so since your original loan’s closing date that may affect your ability to refinance now. You may be earning less, lost another source of income, or depleted your cash assets because of illness, university education, etc.
Don’t forget credit scores, either. In the span of time leading to your refi application, your score may have deteriorated because of missed payments, accounts in collection, or bankruptcy.
This regulatory check as evidenced by piles of paperwork ensures that you have been vetted to not default on your loan.
Lenders who have you on their file will likely see any changes to your financial situation. All the more reason why they still ask documents from you, although some lenders are said to keep records of their existing borrowers.
Because refinancing with your existing lender requires more or less the same documentation process, you might as well shop around for loans by other lenders. Look for a lower rate and lower closing costs in shopping for a refinance loan.
Documents You Need to Refinance
Regardless of who you choose to refinance with, you’ll compile and organize several documents including but not limited to:
- Pay stubs
- Form W-2s
- Bank statements
- Tax returns
- Other income proof
- Investment income proof
- Credit report (lender will run it)
- Appraisal
- Payment history
(Fewer) Documents to Refinance?
An option for some homeowners who want to ease the tedious task of gathering financial paperwork is streamline refinance. This streamlined refi aims to save time and costs when refinancing. The streamline refinance programs available in the market today are:
- FHA loans: no appraisal, no credit check, no capacity check.
- VA loans: no appraisal, no credit check
- USDA loans: no appraisal except for those receiving subsidy,
- Conventional loans (replacement of HARP® in October): no appraisal and no DTI, credit and LTV requirements.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.
