The Cash-Out Refinance Loan Process
Video: Where to start the Cash-Out Refinance loan process
The Cash-Out Refinance loan process has three key steps: Preapproval; underwriting; and closing.
For homebuyers, this journey doesn’t look much different than the process for other types of home loans. Every loan has its benefits and will suite each borrower to their specific needs. Let’s take a deeper dive into the Cash-Out Refinance loan process, starting with the first and arguably most critical step – getting preapproved.
Step 1: Cash-Out Refinance Loan Preapproval
Getting preapproved for a Cash-Out Refinance loan is a foundational first step. Loan preapproval is important on a couple major fronts. One, preapproval gives the buyers a clear sense of their purchasing power. Two, it shows lenders that you’re a serious who can afford to make this adjustment to your current loan
So what does it take to get preapproved?
Typically, lenders will start by asking about your goals, your work experience and your employment history before getting your permission for a hard credit inquiry. Prospective buyers who meet a lender’s credit score benchmark will then need to provide documents to verify key information. Document requests can differ depending on the nature of your income, your history and more.
Documents you may need to provide during Cash-Out Refinance Loan preapproval include:
- A copy of your driver’s license or other government identification
- Recent pay stubs and W-2s or 1099s for the last two years
- Recent bank statements
Talk with your loan officer if you have questions about documentation needs. The faster you get this paperwork back to the lender, the faster they can move to verify information and finalize your loan preapproval.
MORE: Check Your Eligibility for a Cash-Out Refinance loan
The loan officer will go over your paperwork, double check your income and other key details to verify your purchasing power and decide about whether you’re ready to move forward. The loan preapproval process builds toward an important final step – generating a preapproval letter. If everything checks out, the lender will issue a preapproval letter. These aren’t a guarantee of financing, and they typically come with a host of conditions that need to be met. But they’re powerful tools that give Cash-Out Refinance borrowers a clear sense of their purchasing power. They also show real estate agents and home sellers that you’re a strong and serious buyer. In fact, some listing agents and sellers only accept offers from preapproved buyers. That letter gives them confidence you’ll follow through on the offer and make it to closing day.
See What You Qualify For
Step 2: Cash-Out Refinance Loan Underwriting
The Cash-Out Refinance loan process jump-starts once your Orbit Home Loan broker send your information to the underwriters so they can take a closer look at your overall refinancing picture. The lender will also prepare to order the Cash-Out Refinance appraisal. Keep in mind that for certain programs is it possible no appraisal will be need, to learn more about this ask your Orbit Home loans broker. The broker assigns an independent, third-party appraiser to assess the property’s value and condition. Lenders have no control over the appraiser, their timeline for conducting the appraisal, or their assessment of the property.
The appraiser will look at recent comparable home sales when evaluating the home’s fair market value. Buyers will need the home to appraise for at least what they’ve offered to pay for it. If an appraisal falls short, the buyer and seller will need to renegotiate the purchase price or end the transaction. If the appraiser notes repairs are needed to meet the Cash-Out Refinance Minimum Property Requirements, buyers can ask the seller to pay for those or even cover the costs themselves in some cases. While the appraisal process is unfolding, buyers should be prepared for questions and requests for additional information from their loan team. The lender’s underwriters will be looking at financial, employment and other documents to make sure you have the willingness and ability to repay the loan.
The faster you get back to your lender with answers and information, the smoother this stage tends to go. Talk with your loan team if you have any questions or need additional explanation about an underwriting request. Once the appraisal is finalized and underwriters feel good about your loan file, you’ll be considered “clear to close,” which means you’re ready to head to your closing day. Being “clear to close” is still not a guarantee of financing, but you’re just about there.
Step 3: Your Cash-Out Refinance Loan Closing
Cash-Out Refinance buyers will receive a Closing Disclosure shortly before their scheduled loan closing. This document allows buyers to compare their final closing costs and loan information to estimates they received earlier in the process. Your loan officer will typically review this document with you. Be sure to ask if you have any questions about your costs and fees or anything else. Lenders will often verify your employment and other key information one last time before your loan closing. Notify your loan team immediately if anything changes with your employment or income status.
It’s also important to avoid taking on new debt or moving money around once you start the Cash-Out Refinance loan process. Buyers will often have a final walk-through of the property they’re purchasing. This allows you to make sure any repairs were completed satisfactorily; those items you didn’t want to stay behind have been removed; and more. Contact your real estate agent and lender as soon as possible if there are any problems. When closing day arrives, you’ll sign final paperwork and get the keys to your new home.
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