Refinancing replaces your current loan with a new home loan — usually with more-favorable terms, such as a better interest rate or shorter repayment term.
Your refinance lender will want to know you can repay the loan, and will ask for a number of documents before approving your application. If you collect these documents ahead of time, you’ll be ready when you decide to refinance your loan, which could speed up the process.
Here’s a look at the documents you need for a refinance.
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- Proof of income
- Proof of insurance
- Credit information
- Statement of debt
- Statement of assets
- Additional documents
Before you refinance a loan, lenders will want to see proof of income that shows you’ll be able to make the loan payments. Proof of income documents are different for salaried employees and freelancers or independent contractors.
You can show proof of income by providing the following documents:
- Recent pay stubs
- Two years’ worth of W-2s
- Two years’ worth of tax returns
- Proof of income letter from employer
Freelancers and independent contractors
- Two years’ worth of tax returns
- Profit and loss statements
- Business relationship verification letter
Just as you had to show your lender proof of insurance coverage when you took out your first mortgage, you’ll need to show proof of insurance when you refinance, since you’re replacing your current loan with a new one. Lenders require you to have homeowners insurance to protect their investment — your home — against catastrophic damage. And they require title insurance to show whether there might be a lien placed on the property, any undisclosed heirs, fraud, or unpaid property taxes.
Some documents you can use to prove you have insurance include:
- A copy of your homeowners insurance policy
- A declarations page that lists your policy information
- A letter from your insurance agent
- A copy of your title insurance policy
- A copy of the recorded deed, showing the names of the legal owners
- If you no longer have your closing documents, contact your lender
Any time you apply for a loan, lenders want to see your credit information and will pull your credit report. This helps them decide how likely you are to repay the loan.
Your credit information tells lenders how well you handle money based on your past loans. If you have negative information on your credit report, you can provide your lender a letter that explains any late payments, collection accounts, judgments, or bankruptcy discharges. This is known as a letter of explanation.
Some documents you can provide to show your payment history include:
- Utility bills
- Auto insurance bill
- Bankruptcy discharge papers, if applicable
With Credible, you can compare mortgage refinance rates from various lenders, without affecting your credit.
Statements of debt show lenders how much you owe other lenders for debts, such as student loan debt, credit card debt, or a car loan. This helps lenders determine whether you have a manageable amount of debt based on your income or whether you might be overextended. Lenders also calculate your debt-to-income ratio, or DTI ratio, which is a percentage showing how much of your monthly earnings go toward your debt obligations.
To calculate your DTI, lenders add up all your monthly debt payments and divide that number by your gross monthly income. Your DTI ratio can be as high as 43% for some loans, but some lenders could require a lower number.
Once a lender knows your DTI, it can determine whether you can handle the refinance loan along with your other debt. Documents that fall under this category include your monthly statements for the following:
- Student loan
- Auto loan
- Credit card
- Current mortgage statement
- Home equity loan or home equity line of credit
- Personal loan
A statement of assets shows lenders your net worth based on your assets. You’ll need to show that you have enough assets to afford the monthly mortgage payment, which includes the principal, interest, property taxes, and insurance.
Lenders typically want to see that you have enough liquid assets to cover a certain number of mortgage payments. This exact number varies by lender. Lenders may require you to have up to 12 months’ worth of cash in the bank in case of an emergency.
Some assets you should include documentation for include:
- Bank statements, such as checking accounts, savings accounts, money market accounts, or certificates of deposit
- Physical assets that you could sell for cash, like jewelry, rental properties, or cars
- Retirement accounts, such as your 401(k) or IRA
The documents in this article aren't necessarily an exhaustive list. Depending on which lender you use and your current financial situation, you might need to provide additional documents, including:
- Child support order — Child support payments don’t typically appear on credit reports, unless they’re late. Your lender might ask for documentation on what you pay.
- Divorce decree — If you pay alimony, your lender might need to know how much you pay.
- Gift letter — If you have recent deposits in your account, such as gifts from family, you may need documentation to explain them.
Credible makes it easy to compare mortgage refinance offers from multiple lenders.