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The Refinance Application Process

Know what you'll need, and what to do.

Applying for refinancing is in most ways similar to the mortgage application process-basically, you're applying for a new mortgage. But since you're already in your home, the Massachusetts refinancing process generally moves fairly rapidly.

Step 1: The Appraisal

Massachusetts refinancing rates and terms are based in large part on "loan to value" (LTV).  LTV is simply the ratio of unpaid mortgage principal to home value. (For example, if you owe $150,000 in principal on a home valued at $250,000, then your LTV is 60%).  The higher your LTV, the greater a risk you are to lenders.

Usually your lender will arrange the appraisal. There are typically two types of home appraisals:

  • The less expensive, "drive-by" appraisal is pretty much just that: The appraiser views your home from a distance without going inside. He or she assesses its condition and may also compare it with other neighborhood homes.
  • A full home appraisal will cost you more, but it can work to your advantage if you've spent a considerable amount of money on home improvements, landscaping additions, and/or upgrades. Give a list of these to the appraiser, with dates, costs, and copies of permits included.

As a rule, Massachusetts refinancing lenders require you to have paid down at least 20% of the appraised value of your home.

Step 2: Financial Documentation

As with your current mortgage, you'll need to supply in-depth documentation of your current financial situation. This documentation typically includes, but isn't limited to:

  • Your W-2 forms from the last two years
  • Your pay stubs from the last two months
  • All recent bank and investment account statements (checking, savings, mutual funds, brokerage accounts, IRAs, 401(k)s, etc.)
  • An accounting of your current debts, including balances and minimum monthly payments (loans, credit cards, child support, etc.)
  • If you're self-employed or own more than 25% of a business, you'll need to provide your federal income tax returns.

With this information, your lender can get a good idea of how much mortgage debt you can reasonably take on.

Step 3: Good faith estimate and HUD-1 statement

Shortly after you apply, your lender will provide you with a good faith estimate that lists the costs you can expect to pay in order to close on your refinanced mortgage. On average, totaling between 2% and 3% of your loan amount, they typically include:

  • Appraisal fees
  • Closing/attorney fees
  • Recording fees
  • Credit reports
  • Underwriting fees
  • Title insurance
  • Private mortgage insurance
  • Loan origination charges
  • Points (charges for "buying down" your interest rate)

Before your closing, you'll receive a preliminary HUD-1 Settlement Statement that should accurately list your final closing costs. Some categories of closing costs may change from the estimates that were provided on the GFE. Ask your lender to explain these differences. If these new costs put too much strain on your budget, ask about your options.

NEXT: The Closing