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Refinancing replaces your current loan with a new home loan, usually with more favorable terms, such as a better interest rate or a shorter repayment term.
Your refinance lender will want to know that you can repay the loan and will ask you for a number of documents before approving your application. If you collect these documents in advance, you will be ready when you decide to refinance your loanwhich could speed up the process.
Here is an overview of the documents you need for a refinance.
It’s a good idea to compare mortgage refinance rates from several lenders. With Credible, you can see custom pricing in minutes.
proof of income
Before you refinance a loan, lenders will want to see proof of income that shows you will be able to make the loan payments. Proof of income documents are different for salaried employees and freelancers or independent contractors.
You can prove your income by providing the following documents:
- Recent payslips
- Two years of W-2
- Two years of tax returns
- Letter of proof of income from employer
Freelancers and Independent Contractors
- Two years of tax returns
- Profit and loss accounts
- Business relationship verification letter
proof of insurance
Just as you had to show your lender proof of insurance when you took out your first mortgage, you will need to show proof of insurance when you refinance, since you replace your current loan with a new one. Lenders require you to have home insurance to protect their investment – your home – against catastrophic damage. And they need title insurance to show if there might be a lien placed on the property, undisclosed heirs, fraud, or unpaid property taxes.
Some documents you can use to prove you have insurance include:
- A copy of your home insurance policy
- A declarations page that lists information about your policy
- A letter from your insurance agent
- A copy of your title insurance policy
- A copy of the registered deed, showing the names of the legal owners
- If you no longer have your closing documents, contact your lender
Every time you apply for a loan, lenders want to see your credit information and will pull your credit report. This helps them determine the likelihood of you repaying the loan.
Your credit information tells lenders how well you handle money based on your past loans. If you have negative information on your credit report, you can provide your lender with a letter explaining any late payment, collection account, judgment, or bankruptcy discharge. This is called a letter of explanation.
Some documents you can provide to show your payment history include:
- Utility bills
- car insurance bill
- Bankruptcy discharge documents, if applicable
With Credible, you can compare mortgage refinance rates from various lenders, without affecting your credit.
Debt statements tell lenders how much you owe other lenders for debts, such as a student loan, 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 might be overburdened. Lenders also calculate your debt-to-income ratio, or DTI ratio, which is a percentage showing how much of your monthly income is spent on your debts.
To calculate your DTI, lenders add up all your monthly debt payments and divide that number by your gross monthly income. Your DTI ratio can be as high as 43% for some loans, but some lenders may require a lower number.
Once a lender knows your DTI, they can determine if you can manage the refinance loan with your other debts. Documents that fall into this category include your monthly statements for the following:
- Student loan
- Automatic loan
- Credit card
- Current mortgage statement
- Home equity loan or home equity line of credit
- Personal loan
State of assets
A statement of assets shows lenders your net worth based on your assets. You will need to show that you have enough assets to pay the monthly mortgage payment, which includes principal, interest, property taxes and insurance.
Lenders usually want to make sure you have enough liquid assets to cover a certain number of mortgage payments. This exact number varies by lender. Lenders may require you to have up to 12 months of cash in the bank in case of an emergency.
Some assets you should include documentation for include:
- Bank statements, such as checking 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 your 401(k) or IRA
The documents in this article are not necessarily an exhaustive list. Depending on the lender you use and your current financial situation, you may need to provide additional documents, including:
- Order for child support — Child support payments usually don’t show up on credit reports unless they’re overdue. Your lender may ask you for documents about what you are paying.
- Divorce decree – If you are paying child support, your lender may need to know how much you are paying.
- Gift letter — If you have recent deposits in your account, such as gifts from family, you may need documentation to explain them.
Credible, it’s easy to compare mortgage refinance offers from several lenders.