• People should understand the refinance process before applying for a home loan.mortgage image by hans slegers from Fotolia.com
  
  Refinancing is a simple process; however, it is one that requires considerable legwork before a loan makes it to closing. It is important for borrowers to understand what is expected before becoming involved in a transaction that can be delayed for trivial mistakes that could have been avoided. From properly documenting income to determining equity in their properties, homeowners must satisfy each lender requirement as requested.
  
  

Determining Equity

• There must be sufficient equity in your home for you to refinance your existing loan. If you have an estimate of what your home is worth, you can subtract what you owe on your existing home loan from the value of your home. This gives you the amount of equity in your home and provides an idea of whether there's is enough equity to satisfy refinancing requirements to replace your existing home loan with a new mortgage.
  
  

Pre-Qualification

• It is important to speak to a loan officer before you proceed with a refinance transaction. If you are certain you have enough equity in your home and you can document your income, contact a mortgage loan officer to get pre-qualified. Your loan officer requires your monthly income amount, estimated value of your property and what you currently owe on your existing mortgage. The bank checks your credit history and determines whether completing a full application is worth your time.
  
  

Processing, Underwriting and Closing

• Once you have been pre-qualified, you must sign an application package. You must also furnish hard copies of your last two W-2 forms and paycheck stubs or tax returns if you're self-employed. Your loan officer orders an appraisal on your home and a title policy. Your loan is examined by an underwriter, and upon completion of underwriting, your bank schedules closing. At closing, you are required to sign documents detailing your new loan. In most states, banks must wait three days before loan funds are issued. This allows borrowers the opportunity to rescind the agreement if they feel the transaction does not meet their needs after closing. Loan payments on the refinanced mortgage commence approximately 30 days after the date of funding.