Considering a home refinance? If you are, you may have a lot of questions. These can include: What does it mean to refinance? What does a loan for refinancing mean? What role in the process does the title company have?
We know this can be a confusing experience if you haven't done it in the past. The points addressed here will help you understand the process better. That can ensure you know what is involved in refinancing, and why you need the help of a title company, too.
How Refinancing Works
When you buy a home, you have every intention of making the payments on your mortgage. But sometimes, things occur which make that more difficult to do. When that happens, a homeowner may decide on refinancing.
A refinance involves working with your lender, for a reduction in mortgage payments. Another reason a person might refinance their house is in the case of divorce. Refinancing can be used to take another person's name off of the mortgage. Additionally, people may refinance if their credit has gotten much better since they bought their house. That could mean they would have a much lower interest rate.
What a Refinance Loan Means
When refinancing a home, the homeowner will need to pay off the original loan. The refinance loan will be used as a second loan, and it will pay off the first loan. Sometimes, that is all the refinancing does, and the homeowner doesn't receive any extra money. If that happens, the lender for the first loan will get the entire amount of the second loan.
What the Average Closing Cost of Refinancing Really Is
On average, the closing costs for refinancing are 1.5% of the loan amount. For a mortgage of 250,000 for example, the closing costs to refinance would add up to $3,750, approximately. However, there are a lot of factors that can have an impact on the cost of closing for a refinance loan. The kind of loan chosen to the credit score and more may affect how much a homeowner pays. It's very important to keep in mind that no two situations are completely alike.
A New Title Isn't Usually Part of the Refinance
When refinancing a home, the title company will do a public records search in order to confirm property ownership. Generally, you will not receive a new title when refinancing, because you already own the home. An owner's title insurance policy is also only part of the original closing of your home, which would have been the purchase. For every separate loan transaction, a loan title insurance policy is the only one that you have to buy. If you have confirmation that you own the property already, you will be able to get a reissue credit from the title company when you submit your owner's title policy to them.
However, it is important to note that there are times when you may be issued a new title, instead of keeping your old one. If the name of the property owners (the current vesting) changes, a new title might be issued. That is more common in divorce cases, when one spouse is removed from the title and/or the spouse remaining on the title changes their legal name.
Paying for Title Insurance When Refinancing
Among the most important things to know about title insurance is that it is a lot less expensive than most other types of insurance, such as what you would buy for your vehicle. The cost is less because there is no monthly premium. It is a one-time amount that is paid at closing, instead. In trade for paying for the title insurance policy, you receive legal proof that you own the property. Any past events that you are not aware of, or that others may not know about, cannot result in you losing ownership of that property through claims on the title. Also, lenders and owners typically purchase title insurance when a property closes, so both of the parties have adequate protection. Title companies work with both lenders and borrowers for their title insurance needs. A lender's policy is issued by the title company to ensure that the mortgage holder is protected until the borrower pays off the loan. By working with a title company on a refinance, a lender can have peace of mind in the same way the borrower does.
Another piece of information worth noting is that every mortgage has securities backing it. That means investors want to feel confident when they put their money toward these kinds of securities. That confidence is provided by title insurance policies. Without having proper title insurance, it would not be easy to get the necessary assets to back mortgages. Investors would see these mortgages as too much of a risk, and would avoid them. When homeowners have title insurance, that is no longer a problem.
The Responsibilities of the Title Company
The responsibilities of a title company are going to vary, depending on the situation.
Remember, when a homeowner refinances their mortgage, even if they work with the original lender who holds their current mortgage, that lender will generally hire a title company for research. The goal of that research is to confirm that the applicant for the refinance is truly the legal owner of the property.
The process might also reveal important information the lender wants to know. For example, a title search may show that the owner of the property has a judgment against them. That could mean the owner would have to pay the judgment before they could start the process of refinancing.
Commonly, title companies also have involvement in the closing process. When the lender and property owner reach an agreement on refinancing, a settlement statement is prepared by the title company. That document is designed to provide information on how the loan funds will be given to the person borrowing the money. It also shows how the funds are going to be used. If a loan is being used to pay bills, for example, the settlement statement will list those bills.
Occasionally, title companies are also involved in disbursing funds. There are times when lenders provide the loan to the title company, instead of paying it directly to the person borrowing it. That generally happens when there are other parties besides the borrower who are going to be paid for the proceeds of the refinance loan.
Overall, the title company can serve as a go-between for the parties to a refinance loan. This may include lenders and borrowers, but also can include surveyors, government employees, attorneys, and other interested parties. Because there can be a lot of steps to a refinance, and issues can occur before the loan can close, it is easier to have a neutral party working with everyone to get through the process as smoothly as possible.
The benefits to all the parties involved is the primary reason to work with a title company when refinancing a home. By helping with the specific steps and coordinating with organizations and people, the title company can help make refinancing work more efficiently.
That is the goal we have at Metro Title. We know that refinancing in Utah can feel like an overwhelming process. Each step of the way, we will work with all the parties to the refinance, to make things easier for everyone. If you are ready to learn more about the process, and how we can help, contact us at Metro National Title today.