What Happens When I Refinance My Mortgage Loan?

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Think about what’s involved in refinancing your mortgage?  It is just about the same as when you applied for the original mortgage.  You still have to be able to qualify based on your current financial situation and most lenders now require some sort of equity in your home.

The mortgage lender will review your credit history which involves pulling your credit reports and credit scores from all three credit reporting agencies (Equifax, Experian and TransUnion).  The credit reports from all three companies are combined, which makes it easier to absorb the information.  And, of all the scores that are pulled from the credit bureaus, your middle numeric score is the one used for their decision.

Since the mortgage lender reviews your credit reports from all three credit bureaus, it is important that you have good credit at each.  This underscores the importance of pulled your free credit reports from each credit reporting agency via annualcreditreport.com. When you pull them look for any errors and get them corrected prior to refinancing.  Otherwise, this can delay your mortgage approval.

When the mortgage lender reviews you credit report, an inquiry is placed on your credit report at all three of the credit reporting agencies. If you shopped for rates, each lender that reviewed your credit to determine which rate you qualified for posted an inquiry on your credit report.  As long as you shop for rates within a 45-day window, this will have a minimal impact on your credit scores.

After the lender orders gives you a conditional approval they’ll have your house appraised to ensure they are fully secured in case you default. Given the number of foreclosure sales in the past 5 years the appraisal is no longer a slam dunk. Many consumers are unable to obtain financing because they’re house didn’t “comp” out, which means there were no comparable sales in your area to justify your loan amount.

If your loan is approved the lender will set a closing appointment with an attorney. At closing you’ll be asked to sign a small mountain of paperwork obligating you to pay the new lender.

Once the new loan is approved an in place the mortgage, as previously mentioned, will be reported to the credit reporting agencies, thus adding a new chapter to your credit history.

Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and CreditSesame.com, founder of www.creditexpertwitness.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  You can follow John on Twitter here

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