For anyone considering a home refinance, there are usually plenty of questions to consider. Among those questions are: What does it mean to refinance a mortgage? What does a loan for refinancing mean for a person's financial situation? What role in the process does a title company have for the homeowner and lender?
We know it can be a confusing experience to refinance, if it's not something you've ever done before. The points detailed here can help you understand the process more clearly, so you can make informed decisions about refinancing. That can help to ensure that you know what is involved in a refinance, and why you need title company help, as well.
How the Process of Refinancing Works
When you purchase a house, you plan on making all the payments on your mortgage. But sometimes, things get in the way that make it more difficult to do that successfully. When that happens, a homeowner may decide that refinancing is the right choice.
A refinance involves working with a lender, to get a new loan that offers a reduction in your mortgage payments. Another reason someone might decide to refinance their house is if they're getting a divorce. Refinancing could be used to take one person's name off the mortgage and the title to the house. Additionally, people sometimes refinance if their credit has gotten a lot better since they bought their home. That could give them the chance at a lower interest rate than they had before.
What a Refinance Loan Really Means
When refinancing a house, the homeowner needs to pay off the first mortgage. The refinance loan is generally used as a second loan, and pays off the first one. Sometimes, that's all the refinancing is for, and the homeowner doesn't get any money from it. If that happens, the lender gets the entire amount of the second loan, but the homeowner gets better terms, a better interest rate, or another valuable reason to refinance.
The Average Refinancing Closing Costs
On average, closing costs for refinancing are approximately 1.5% of the loan amount. For a mortgage of 250,000, that means the homeowner would need to pay around $3,750. But keep in mind, there are many factors that have an impact on closing costs for a refinance loan. The kind of loan the homeowner is getting, their credit score, and other factors affect how much they're asked to pay. It's seriously important to keep in mind that there aren't any two situations exactly alike.
A New Title Isn't Part of the Deal
When a homeowner is refinancing their house, the title company performs a search of the public records, to confirm legal property ownership. Generally, you won't get a new title when you refinance, because you already have ownership of the house. You also won't get an owner's title insurance policy, because it's also part of the closing on the sale of your home, which would have been the original purchase only. For every loan transaction, though, a loan title policy is the one you need to buy. With confirmation that you already own the property, you'll be able to get a credit from your title company when you submit your current owner's policy.
However, it's important to note that may be times when you get a new title, instead of keeping the old one. If the name of property owners changes, a new title could be issued. That's common in divorce cases, when a spouse is taken off the title or the other spouse on the title changes their name.
Paying for Title Insurance
Among the most important things you should know about title insurance is that it's not as expensive as other insurance types. It doesn't have a monthly premium, and it's a one-time purchase at closing. In trade for buying the policy, you get legal proof of ownership and protection to keep you from losing title to the property through claims made by others. Both lenders and owners generally buy title insurance at closing, so they're both properly protected. Title companies help both parties, and a lender's policy gives protection to the mortgage holder until the loan is paid off by the borrower. That gives both the lender and the borrower peace of mind.
Another bit of information that's worth noting is that every mortgage has securities that are used to back it. That means investors need to feel confident when they invest their money toward securities. That confidence comes from title insurance policies. Without proper title insurance, it would be hard to come up with the assets to back mortgages, because investors would see the mortgages as too risky. When homeowners have a title insurance policy, though, that's no longer a problem.
Responsibilities of a Title Company
The responsibilities a title company has will vary, depending on the specific situation a homeowner and lender have for the refinancing.
Remember, when a homeowner refinances a mortgage, even if they're working with the lender who holds the current mortgage, the lender will generally still choose to hire a title company for their research. The goal of the research is to make sure the homeowner who's applying for the refinance is actually the true, legal owner of the property.
The process may also help to reveal important information that the lender would want to know. As an example, a title search could show that the property owner has a judgment against them. That may mean the owner would be asked to pay off the judgment before they would start the process of getting a refinance loan. They may also want to add the judgment to what gets paid from the refinance proceeds.
Commonly, title companies have involvement throughout the entire process of closing. When a lender and a property owner come to an agreement on a refinance, a settlement statement is then prepared by a title company. That document provides information on how the loan funds will be distributed to the person who's borrowing money. It also shows how those funds are to be used. If a loan is for paying bills, the settlement statement would list those bills and how much is being paid on each one.
Occasionally, title companies also get involved in the disbursement of funds. There are times when a lender provides the total loan amount to the title company, instead of paying it to the person who's borrowing it. That usually happens when there are other parties along with the borrower who are getting paid from the refinance loan proceeds.
Overall, a title company often serves as a go-between for parties to a refinance. This may include both the lender and the borrower, but it also often includes surveyors, government employees, attorneys, and other parties who have an interest in the transaction. Because there are often many steps to a refinance, issues can and do occur before the loan is closed. It is much easier to address those issues when there is a neutral party working with everyone.The process often goes much more smoothly that way.
The benefits to parties involved in a refinance is the main reason to work with a title company. By helping with specific steps and coordinating with people and organizations, a title company makes refinancing more efficient and less stressful.
That is the goal of Metro Title. We understand that refinancing in Utah can sometimes feel overwhelming. Each and every step of the way, we can work with all parties to make the process easier for everyone. If you are ready to learn more about how we can help with your home refinance, reach out to us today at Metro National Title.