In response to the pandemic and the Fed’s emergency rate cuts, which have driven refinance rates down to rarely-seen lows, mortgage refinancing has recently soared to unprecedented levels. Clearly, now is a popular time to refinance (particularly if you're interested in saving money with lower monthly payments). According to Ellie Mae’s origination tracker, mortgage refinances accounted for 65 percent of all loans closed in April, up from 55 percent in March and just 51 percent in February when the coronavirus began to spread in earnest.
Between the sheer volume of applications — accompanied by lower rates — that are inundating mortgage lenders and limitations placed on the industry due to stay-at-home orders, it should come as no surprise the process of refinancing your home may have changed a bit since you last closed on a loan. With that in mind, here is an overview of what to expect of a home refinance amid a pandemic.
What happens when you refinance your mortgage during a pandemic?
If there’s one thing that the data from the origination tracker makes clear, it’s that it now takes a little longer to refinance your home. If you're ready to refinance your mortgage, you should get a jump-start by checking out Credible's free online tools to view different types of mortgage refinance deals and see if you can snag lower rates today.
After all, the average time it took to close on a refinance loan in April was 39 days, four days longer than in March and six days longer than the same time last year. As for what was behind the longer wait time, Joe Tyrrell, the chief operating officer of Ellie Mae says the number of applications does play a role, but, ultimately, the pandemic is responsible.
“One of the steps in the process of originating a loan is verifying employment and income. To do this, you have to actually reach out to the person’s employer, but with so many companies now working from home, it’s taking longer to get those verifications done,” he explains. “[Mortgage lenders] are also taking extra steps to verify everyone’s income because unemployment is so high.”
Fortunately, Tyrrell also says that while some of these delays are unavoidable, there are some things that borrowers can do to keep the process moving along as smoothly as possible.
What should you do before you refinance?
Check your credit score
Having bad credit could hinder your chances of refinancing your home. One of the first things to do Tyrrell says is checking your credit score. He explains that many lenders are tightening up credit standards due to the economic uncertainty surrounding the pandemic, so making sure that your credit score looks its best is even more important than it was a few months ago.
He suggests taking the time to check your credit reports for any errors and talking to a lender about what personal finance moves will have the biggest impact on your score. For instance, if you have a student loan with only a few payments left, a lender might tell you to pay down that debt before refinancing your mortgage to see a boost in your score and to have a chance to access a lower interest rate.
If you're confident in your credit score and everything appears to be accurate, then you can plug in your information online to determine what kind of mortgage refinance rates you qualify for today.
When it comes time to shop around for lower rates, Credible makes it easy to compare multiple options from refinancing lenders at once without having to affect your credit score.
Gather all of your mortgage documents ahead of time
The other thing he suggests is to talk to your lender about what mortgage documents you need to submit and to gather them all into a complete package before handing them over to the loan servicer. Not doing so, it seems, could be one of the biggest mortgage refinancing mistakes.
“If you can give the lender a complete package, it’s so much easier to have a straightforward processing experience,” says Tyrrell. “When a consumer provides partial information, most of the time, the loan won’t get sent to the underwriter until everything is received because the package is incomplete.”
What forms should you have ready for your lender?
With that in mind, below is a list of the most common documents borrowers need to complete a refinance application:
Two years of W-2s
Two years of tax returns
Two months of bank statements for any savings accounts and asset statements
A list of your current liabilities
A copy of your homeowner’s insurance policy
However, Tyrrell cautions that you may need to provide some extra documentation in light of the pandemic.
“If you’ve renovated your kitchen since you first took out your loan, that would normally be an adjustment to your appraisal. However, now that appraisers aren’t going into homes, the lender may need additional documentation to support an increase to your home’s value.”
Other possible information you may need to provide includes explanations for any gaps in employment or any credit activity that’s out of the ordinary.