How to Refinance a Mortgage: The Steps From Start to Approval

What happens when you refinance

Refinancing means you take out a new mortgage to pay off your existing one. The new lender pays your old lender in full, and you start making payments to the new lender instead. You keep the same house — the only thing that changes is who holds the loan and what the terms are.

People refinance to lower their interest rate, change how long they have to pay back the loan, switch from an adjustable rate to a fixed rate, or pull cash out of their home's equity. The trade-off is that you pay closing costs again — typically 2 to 5 percent of the loan amount — and you restart the clock on your repayment timeline.

Key Takeaways

• Refinancing requires a new appraisal, credit check, and income verification, which takes four to six weeks from application to closing.
• You will pay closing costs a second time, which can range from a few thousand dollars to tens of thousands depending on your loan size.
• Your credit score, current home value, and how much equity you have determine whether a lender will approve you and what rate they offer.
• The break-even point — when your monthly savings equal what you paid in closing costs — usually takes two to five years to reach.
• You can lock in your interest rate once you submit your application, which protects you if rates rise while your loan is being processed.

Step 1: Check your home's current value and your equity

Before you contact a lender, find out roughly what your house is worth now and how much of it you own outright. Your equity is the difference between what the house is worth and what you still owe on the mortgage.

You can get a rough estimate using online tools like Zillow or Redfin, but lenders will order their own appraisal later. Most lenders want you to have at least 20 percent equity in the home, though some will refinance with less. If you owe $300,000 on a house worth $400,000, you have $100,000 in equity — 25 percent of the home's value.

Step 2: Review your credit score and recent credit activity

Pull your credit report from all three bureaus — Equifax, Experian, and TransUnion — at annualcreditreport.com, which is free and federally mandated. Look for errors, unpaid accounts, or late payments that might hurt your score. Lenders typically want a score of 620 or higher, though better rates usually require 740 or above.

If you have recent late payments or high credit card balances, wait a few months if you can. Paying down credit cards and making on-time payments will improve your score before you apply. Do not open new credit accounts or make large purchases in the months before you refinance — lenders will see new debt as a red flag.

Step 3: Gather your financial documents

Lenders will ask for the same paperwork you provided when you bought the house. Collect two months of recent pay stubs, two years of tax returns, two months of bank statements, and your current mortgage statement showing the loan balance and interest rate. If you are self-employed, bring profit-and-loss statements and possibly three years of tax returns.

You will also need your property deed or a recent title report, proof of homeowners insurance, and documentation of any other debts — car loans, student loans, credit cards. The lender uses this to calculate your debt-to-income ratio, which is the percentage of your gross monthly income that goes toward debt payments. Most lenders want this ratio below 43 percent.

Step 4: Shop for rates and get loan estimates

Contact at least three lenders — banks, credit unions, and mortgage brokers all offer refinancing. Ask each one for a Loan Estimate, which is a standardized form that shows the interest rate, monthly payment, closing costs, and terms. The form is required by federal law and lets you compare apples to apples.

Rates change daily, so get all three estimates on the same day or within a day of each other. Pay attention to the Annual Percentage Rate (APR), not just the interest rate — the APR includes fees and gives you the true cost of borrowing. A lower interest rate with high closing costs might not save you money compared to a slightly higher rate with lower costs.

Step 5: Submit your application and lock your rate

Once you choose a lender, you will complete a formal application. At this point, you can ask the lender to lock your interest rate. A rate lock means the lender guarantees that rate for a set number of days — usually 30, 45, or 60 days — even if market rates change. This protects you if rates rise while your loan is being processed, but if rates fall, you are stuck with the locked rate.

The lender will order an appraisal of your home, pull your credit report officially, and verify your income and employment. This is when they confirm you actually have the equity and income you claimed. The appraisal usually takes one to two weeks and costs $400 to $800, which you pay upfront.

Step 6: Wait for underwriting and provide additional documents

Your application goes to underwriting, where a specialist reviews everything — your credit, income, debts, the appraisal, and the property itself. Underwriters often ask for more documents: a letter explaining any late payments, proof that you paid off a recent debt, or clarification about a gap in employment. Respond to these requests quickly, as delays here are the most common reason refinances take longer than expected.

This stage typically takes one to two weeks. Once the underwriter approves your loan, you move to the final stage called "clear to close," which means all conditions have been met and you are ready to sign documents.

Step 7: Review the Closing Disclosure and schedule closing

Three business days before closing, the lender must send you a Closing Disclosure — a final summary of your loan terms, monthly payment, and all closing costs. Review it carefully against your original Loan Estimate. Closing costs typically include appraisal fees, title search, title insurance, credit report fees, underwriting fees, and lender fees. These add up to 2 to 5 percent of your loan amount.

Closing happens at a title company, attorney's office, or the lender's office. You will sign the promissory note (your promise to repay), the mortgage or deed of trust (the lender's claim on the house), and various disclosures. The whole process takes 30 minutes to an hour. Bring a government-issued ID and a cashier's check or arrange a wire transfer for your closing costs and any cash you owe.

Step 8: Fund the loan and pay off the old mortgage

After you sign, the lender funds the new loan — meaning they send the money to the title company. The title company then pays off your old mortgage in full and records the new mortgage with your county. You will receive a payoff statement from your old lender showing exactly what you owed and when it was paid.

Your first payment to the new lender is usually due 30 to 45 days after closing. You will receive a payment coupon or instructions for setting up automatic payments. From this point forward, you make payments to the new lender, not the old one.

How long refinancing takes

From application to closing typically takes four to six weeks. The appraisal takes one to two weeks, underwriting takes one to two weeks, and the final stages take another week. Delays happen when you are slow to provide documents, when the appraisal comes in lower than expected, or when underwriting uncovers issues with your credit or income.

If the appraisal comes in lower than your home's estimated value, the lender may reduce the loan amount or ask you to pay the difference out of pocket. If this happens, you can walk away from the refinance — you have not signed anything binding yet — or renegotiate with the lender.

Frequently Asked Questions

Can I refinance if I have not owned my house for very long?

Yes, but lenders usually want you to have owned the home for at least six months to a year. If you bought recently, you may have less equity or the appraisal may not support the refinance. Ask the lender directly — some will work with you sooner if your credit and income are strong.

What if my home's appraisal comes in lower than I expected?

If the appraisal is lower than the purchase price or your estimate, the lender will base the loan on that lower value. This means less money to borrow and possibly a smaller loan than you wanted. You can pay the difference yourself, challenge the appraisal if you think it is wrong, or walk away from the refinance.

Do I have to refinance with my current lender?

No. You can refinance with any lender — banks, credit unions, or mortgage brokers. Shopping around is worth it because rates and closing costs vary significantly. The only advantage to staying with your current lender is that they already have your information, which might speed up the process slightly.

What happens to my old mortgage after I refinance?

The new lender pays it off in full at closing. You will receive a payoff statement from your old lender showing the loan was satisfied. The old mortgage is removed from your credit report and your title. You no longer owe anything to the old lender.

Can I refinance if I owe more than my house is worth?

Most conventional lenders will not refinance if you are underwater — meaning you owe more than the home is worth. However, some government programs like FHA Streamline or VA Interest Rate Reduction Refinancing Loan (IRRRL) have different rules. Talk to your current lender or a mortgage broker about whether you have options.