When a borrower chooses to refinance his existing loans, it is often so he can get a better deal. Lenders can often refinance mortgage, auto and in some cases personal loans --- mortgage loans are most commonly associated with a refinancing transaction. Regardless of the type, the borrower must go through a variety of specific steps to refinance a loan.
Find a Willing Lender
The first step for refinancing a loan is for the individual to find a lender who is willing to perform the transaction. A borrower must have an acceptable credit history and score by lender standards to get approved for refinancing. The lender commonly requires the borrower to fill out a preliminary information form or answer a series of questions over the phone to evaluate his creditworthiness for the loan and pull the applicant's credit history.
Examine Terms
The next step is to examine the terms offered by the lender for refinancing the loan. The lender commonly issues a pre-approval notification based on the applicant's credit history and provides information about the rate, term and amount of money the applicant can afford to borrow for refinancing the loan. The borrower must choose a lender to proceed with after comparing the various offers.
Apply and Gather Documents
After reviewing and confirming terms, the borrower must then complete the application process. The application asks more indepth questions about the borrower's current financial situation, including employment, assets and debts. Part of the process is to gather important documents that prove the various statements the borrower makes on the application. The borrower must also provide information about the property in question or previous loan being refinanced. In the case of a mortgage loan the lender schedules an appraisal to determine the market value.
Closing Refinanced Loan
The final step of refinancing is to close the new loan. At the point of closing, the lender is satisfied with the borrower's application, credit history and documents. The loan signing is held either at the bank, the borrower's home or a third-party location. The lender issues funds to the previous lender to close out that loan and initiates the new lending agreement with the borrower.
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