How to Refinance a Mortgage in 6 Steps

To refinance a mortgage, set a clear goal, check your credit and home equity, compare Loan Estimates from several lenders, submit an application with income and asset documents, lock your rate, complete the appraisal and underwriting, and then review and sign your closing documents. Most refinances take about a month or more from application to funding.

The process looks a lot like buying a home, minus the house hunting. Below is each step in order, with what to prepare and where borrowers commonly lose money or time.

Step 1: Decide what you want the refinance to do

Every good refinance starts with a specific goal. Common ones include:

• Lowering your interest rate and monthly payment
• Shortening the term, such as moving from 30 to 15 years
• Switching from an adjustable rate to a fixed rate
• Removing mortgage insurance
• Taking cash out of your equity
• Removing a borrower from the loan

Your goal determines the loan type. A rate-and-term refinance changes the rate or term without meaningful cash back, while a cash-out refinance replaces your loan with a larger one and pays you the difference.

Then check whether the numbers work. Our guide on when to refinance shows how to calculate your break-even point.

Step 2: Check your credit, equity and debt-to-income

Lenders price your loan mainly on three things: credit score, loan-to-value ratio (LTV) and debt-to-income ratio (DTI).

• Credit: Pull your free credit reports and dispute any errors before applying. Avoid opening new credit accounts during the process.
• Equity: Estimate your home's value from recent nearby sales and divide your loan balance by it. At or below 80% LTV, conventional borrowers typically get better pricing and no private mortgage insurance.
• DTI: Add up monthly debt payments, including the new mortgage payment, and divide by gross monthly income.

Our overview of refinance requirements explains typical minimums by loan type.

Step 3: Gather your documents

Having paperwork ready speeds up underwriting. Most lenders ask for:

Step 4: Shop at least three lenders and lock your rate

Rates and fees vary widely between lenders on the same day for the same borrower. Request Loan Estimates from at least three sources, such as a bank, a credit union and an online lender or mortgage broker. Each lender must provide a standardized Loan Estimate within three business days of receiving your application.

Compare these items side by side:

• Interest rate and APR (APR folds in certain fees)
• Section A, origination charges, which vary most between lenders
• Discount points and the rate reduction they buy
• Lender credits, if any
• Cash to close

Request quotes on the same day so rate movements do not skew the comparison. For a breakdown of fees, see our guide to refinance closing costs.

Choosing a lender and locking your rate

Once you pick an offer, tell the lender you intend to proceed and lock your rate. A rate lock guarantees the rate and points for a set period, commonly 30 to 60 days. Longer locks may cost more.

Ask what happens if closing is delayed past the lock expiration. Extension fees can be costly, and some lenders offer a float-down option if rates drop after you lock.

Step 5: Complete the appraisal and underwriting

The lender orders an appraisal to confirm value, unless your loan qualifies for a waiver. An underwriter then verifies income, assets, credit and property details.

Expect conditions, which are requests for more information such as a letter explaining a large deposit or an updated bank statement. Respond quickly and completely.

If the appraisal comes in low, your LTV rises, which can change your pricing or require mortgage insurance. Options include paying down the balance at closing, challenging the appraisal with better comparable sales, or switching loan programs.

Step 6: Review your Closing Disclosure and close

At least three business days before closing, you must receive a Closing Disclosure listing your final rate, payment and costs. Compare it line by line with your Loan Estimate. Certain fees, like the lender's own charges, generally cannot increase, while others may change within limits.

Ask about any difference you do not understand before signing.

Closing and confirming your old loan is paid off

At closing, you sign the new note and mortgage, typically with a notary or settlement agent. For many refinances on a primary residence, a three-business-day rescission period follows before funds disburse.

After funding, the old loan is paid off. Watch for:

• A payoff confirmation from your previous servicer
• A refund of your old escrow account balance, often within about a month
• Welcome information from your new servicer with the first payment date

Keep paying your old loan until you confirm payoff, and set up autopay on the new loan once you know the servicer.

Common refinance mistakes to avoid

• Applying with only one lender. Offers can vary by thousands of dollars in fees for the same borrower.
• Comparing rates without fees. A low rate with several points may cost more than a slightly higher rate with no points.
• Opening new credit mid-process. A new car loan or card can change your DTI and score before closing.
• Letting the rate lock expire. Slow document responses can force costly lock extensions.
• Ignoring the new term. Restarting a 30-year clock can raise lifetime interest even with a lower rate.

The bottom line

Refinancing is a straightforward process when you prepare. Know your goal, run the break-even math, shop several lenders on the same day and respond quickly to underwriting requests. Most importantly, compare total cost, not just the rate, before you lock.