How to Choose a Mortgage Refinance Company

Know your refinance goals

What are your refinance goals? If it’s a lower rate you’re seeking, start by comparing online lenders and credit unions. If you’re self-employed now, or have had a recent credit event, you might benefit from flexible underwriting from a regional bank or credit union.

Understanding your reason can help you narrow down the right lenders. Here are some common reasons to refinance your home.

Debt consolidation

One of the most significant drivers of a refinance is debt consolidation. “When you compare the true cost of high-interest revolving or installment debt, both in long-term cost and monthly cash flow, it can make more sense to give up that ultra-low first mortgage rate,” said Victoria Todd, a loan officer with Cornerstone Home Lending in Dallas, Texas.

“A refinance that restructures everything into one payment often aligns better with someone’s current financial goals, not their goals from years ago, when their home was first purchased,” Todd said.

» CHECK OUT: How often can you refinance your home?

Major interest rate change

When you purchase a home, you lock in an interest rate based on the current market. But if interest rates drop significantly, homeowners will often “date the rate,” said Todd. This is an industry term that reflects homeowners making refinancing decisions based on current interest rates.

Remove PMI

If the down payment on your conventional home loan was less than 20%, you may have had to pay private mortgage insurance (PMI). This insurance helps protect your lender in the event you default on your loan, but it can add quite a chunk of money to your monthly payment. Once you’ve paid down at least 20% of your principal, you may refinance to re-amortize the remaining amount and lower your monthly payment.

Change loan types

Suppose you purchased your home using an interest-only loan, or another type of subprime loan because your credit score wasn’t good enough. Once your credit situation improves, you might choose to refinance your home to another loan type that’s more stable and consistent.

Are you ready to refinance?

Take these steps and considerations into mind before moving forward into choosing a refinance lender:

• Check your credit score: Most lenders require a credit score of 740 or higher, with the best rates reserved for borrowers with a credit score above 760.
• Calculate your DTI: Your debt-to-income (DTI) ratio compares your income to the amount of debt you’re carrying. Most lenders will want to see a DTI ratio less than 43%.
• Estimate your home equity: Your loan-to-value ratio should be less than 80% to qualify for the best rates from a conventional lender. Loans originated through the FHA or VA may allow for higher LTV ratios.

Compare mortgage refinance lender types

While rates and fees are likely to be pretty similar across different lenders, it’s the service that can really differentiate the experience. “Service doesn’t stop once the refinance closes. What happens after closing matters just as much,” Todd said. As you’re shopping lenders, inquire about how your loan will be handled after refinancing.

Here’s an overview of the types of lenders you may find when shopping for mortgage refinance companies, including their pros and cons.

Credit unions

Credit unions are member-owned, so rates can be competitive, and the service can feel personal if they retain servicing. But they’re typically best suited to relatively straightforward refinance situations, such as W-2 borrowers and those who aren’t self-employed. Credit unions aren’t known for their speed, so they wouldn’t be your best option if you’re looking for a quick refinance.

Online lenders

Online mortgage lenders often advertise low rates and boast the ability to quickly review and approve applications. Large, tech-savvy operations allow them to offer versatile refinance options. But be aware that large online lenders may offer an impersonal experience.

National or regional banks

Similarly, large national banks can offer competitive pricing, but they’re usually slower and less streamlined. The experience here can also feel impersonal or inconsistent. Regional banks and independent mortgage lenders have seasoned advisors offering the most customized guidance. Whether you’re W-2, retired, self-employed, or have complex finances, this is where you get true expertise and options.

» NEXT: Mortgage lenders vs. brokers

Compare multiple refinance loan estimates

When you’re ready to begin the process of refinancing your home, and you’ve got a clear picture of your financial situation, it’s time to start requesting loan estimates from potential lenders in order to help you narrow them down and choose the right lender for you.

Use our step-by-step guide below to help you navigate this part of the process.

• Submit applications for three to five lenders within a 14-day window. This minimizes the impact of multiple inquiries on your credit score.
• Request official loan estimates from each — lenders must provide these within three business days.
• Review terms like the interest rate, APR and all fees.
• Compare estimated closing costs, which typically range from 3% to 5%.
• Check for any unusual terms like prepayment penalties or balloon payments.
• Ask about rate lock duration, which is how long the offered rate remains the same. Typically, this should be 30 to 60 days.

Here’s an example of a comparison table you can use to compare loan estimates and offers to help you choose the right mortgage refinance company:

Review documents and final negotiation

Once you get to this point, you’re likely eager to complete the home refinance process. But it’s important to take your time and review everything thoroughly before signing on the dotted line. Review all loan documents your lender provides, confirming that all terms — rates, fees, loan terms and features — match your loan estimate. Review the closing disclosure for accuracy at least three business days before closing.

At this stage, it might even be worthwhile to negotiate a bit further. After all, even small rate or fee reductions can save thousands over the loan term. Approach your lender and ask if they can match or beat a competing offer with lower rates or fees.

Alternatively, you could ask for lender credits to offset closing costs (often $500 to $2,000), negotiate rate lock extensions if you need more time (most lenders will offer an additional 30 to 60 days, or you could request removal or reduction of unnecessary fees such as application or processing fees.

How to spot a potential loan scam

Loan scams are commonplace today, with the rise of artificial intelligence and the prevalence of online loan servicing. That’s why it’s crucial to steer clear of any loan offer that seems even remotely fishy. Here are some red flags to watch for when finalizing and reviewing estimates:

• Loan terms that change at closing or are unclear
• A lender that is evasive or delays providing a loan estimate
• A lender that asks you to pay upfront application fees before receiving a Loan Estimate
• A lender that promises “no closing costs” but increases your rate to compensate