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Refinancing replaces your current loan with a new mortgage – usually on more favorable terms, such as a better interest rate or shorter repayment period.
The refinancing lender will want to know that you can repay the loan and will request a series of documents before approving your application. If you collect these documents earlier, you will be ready when you decide refinance your loanwhich could speed up the process.
Here is a look at the documents you need for a refinancing.
It’s a good idea to compare mortgage refinancing rates from many lenders. With Credible, you can see personalized prices in minutes.
PROOF OF INCOME
Before you refinance a loan, lenders will want to see proof of income that shows that you will be able to make loan payments. Proof of income is different for salaried and self-employed or self-employed contractors.
You can provide proof of income by providing the following documents:
- Recent payroll executives
- W-2 worth two years
- Two year tax returns
- Proof of income from the employer
Freelancers and independent contractors
- Two year tax returns
- Decade 1099
- Profit and loss statements
- Business relationship verification letter
Proof of insurance
Just as you had to show your creditor proof of insurance coverage when you took out your first mortgage, you will need to show proof of insurance when refinancing, as well as you are replacing your current loan with a new one. Lenders require you to have homeowners insurance to protect their investment – your home – from catastrophic damage. And they require securities insurance to show if there is a pledge on the property, any unknown heirs, fraud or unpaid property taxes.
Some documents you can use to prove that you have insurance include:
- Copy of your homeowners insurance policy
- A statement page listing your policy information
- Letter from your insurance agent
- Copy of your title insurance policy
- Copy of the registered deed, with the names of the rightful owners
- If you no longer have the closing documents, contact your lender
Every time you apply for a loan, lenders want to see your credit information and will pull you credit report. This helps them decide how likely they are to repay the loan.
Credit records tell lenders how well you manage your money based on your previous loans. If you have negative information about your credit report, you can give your lender a letter explaining any late payments, collection bills, court decisions or bankruptcies. This is known as an explanatory letter.
Some documents you can provide to display your payment history include:
- Utility accounts
- Car insurance account
- Bankruptcy filing documents, if any
With Credible, you can compare mortgage refinancing rates from various lenders, without affecting your credit.
Debt statements show lenders how much you owe other lenders for debts, such as student loan debt, credit card debt or car loan. This helps lenders determine if you have a manageable amount of debt based on your income or if you may have too much expansion. Lenders also calculate the debt-to-income ratio or the DTI ratio, which is a percentage of how much of your monthly earnings goes into your liabilities.
To calculate your DTI, lenders add up all your monthly debt payments and divide that number by your gross monthly income. The DTI ratio can be up to 43% for some loans, but some lenders might require a lower number.
Once a lender is aware of your DTI, they can determine if you can handle the refinancing loan with your other debt. Documents that fall into this category include your monthly statements for the following:
- Student Loan
- Auto loan
- Credit card
- Current mortgage status
- Housing equity loan or home equity credit line
- Personal loan
An asset statement shows lenders your net worth based on your assets. You need to show that you have enough assets to afford the monthly mortgage payment, which includes capital, interest, property taxes and insurance.
Lenders usually want to see that you have enough liquid assets to cover a certain number of mortgage payments. This exact number varies depending on the lender. Lenders may ask you to have up to 12 months of cash in the bank in an emergency.
Some things to look for when selecting yours are:
- Bank copies, such as current accounts, savings accounts, money market accounts or certificates of deposit
- Physical assets that you could sell for cash, such as jewelry, rental property or cars
- Retirement accounts, such as the 401 (k) or the IRA
The documents in this article are not necessarily an exhaustive list. Depending on the lender you are using and your current financial situation, you may need to provide additional documentation, such as:
- Child Support Order – Child support payments do not usually appear on credit reports unless they are late. Your lender may ask for documentation of what you are paying for.
- Divorce decree – If you are paying alimony, your lender may need to know how much you are paying.
- Gift letter – If you have recent deposits in your account, such as family gifts, you may need documentation to explain them.
Credible makes it easy compare mortgage refinancing offers from many lenders.