If you're considering a home refinance, you probably have plenty of questions, such as: What does refinancing mean? What does a loan for refinancing give me? What role does the title company have in that process?
We know this can be confusing if you haven't done it before. The points addressed on this page can help you to understand the refinancing process more easily. That helps ensure you know what's involved when you refinance, and why you want the help of a title company.
How Does Refinancing Work?
When you buy a house, you probably have every intention of making all the payments on the mortgage. But sometimes, an issue occurs that makes it more difficult to do. If that happens, though, you may decide that refinancing is the right answer.
A refinance involves working with a lender, to reduce mortgage payments. Another reason someone might refinance a house is in the case of a divorce. Refinancing may be used to take another person's name off of a mortgage. Additionally, people can refinance if their credit has improved significantly since they purchased their house. That could give them the opportunity for a much lower interest rate.
What Does a Refinance Loan Mean?
When refinancing a house, a homeowner needs to pay off their original loan. The refinance loan is used like a second loan, and will pay off the first loan. Sometimes, that is the only thing a refinancing does, and the homeowner won't get any extra money. With that type of refinance, the lender for the first loan will get all the amount of the second loan.
What is the Average Closing Cost of Refinancing, Really?
On average, closing costs for refinancing are around 1.5% of the loan amount. For a mortgage of 250,000, the closing costs to refinance would be $3,750, approximately. However, there are plenty of factors that have an impact on the closing costs of a refinance loan. The type of loan that's chosen by the homeowners, the homeowner's credit score, and many other issues may affect how much a homeowner pays to close the loan. It's extremely important to keep that in mind, because no two situations are completely alike.
Is A New Title Part of the Refinance?
When a home gets refinanced, the title company does a public records search. That's conducted in order to confirm ownership of the property. Generally, you won't receive a new title when you refinance, because you already have ownership of the home. A policy for owner's title insurance is also part of the original closing of your home only, and not part of the refinance. For every separate loan, a lender's title insurance policy needs to be purchased. If you have proof that you already own the property, you can get a reissue credit from your title company when you submit the owner's title policy to them.
However, it's important to be aware that there are times when you might be issued a new title, instead of holding onto the old one. If the name of the property owners changes, for example, a new title will be issued. That is common in divorce cases, when a spouse is removed from the title and/or the remaining spouse changes their name.
How Do You Pay for Title Insurance When Refinancing?
Among the most significant things to understand about title insurance is that it's much less expensive than many other types of insurance, such as what you would purchase for a vehicle. The cost is lower because there isn't a monthly premium. It's a one-time purchase, paid at closing. In trade for paying for title insurance, you get legal proof that you're the owner of the property. Any past events you aren't aware of, or that others may not know about, can't result in losing ownership of the property through claims to the title.
Also, lenders and owners typically both buy title insurance when a property closes, so the parties all have protection that's adequate. Title companies work with lenders and borrowers for title insurance needs. A lender's policy will be issued by the title company, and that ensures the mortgage holder is protected until the borrower pays off the mortgage. By working with the title company for a refinance, lenders can have peace of mind the same way that a borrower does.
Another piece of information worth noting is that each mortgage has securities that back it. That means investors need to feel confident when they put money toward securities. That confidence comes from title insurance policies. Without proper title insurance, it would be too difficult to get the necessary assets to back mortgages properly. Investors would see the mortgages as being too much of a risk, and would decide to avoid them. When homeowners have title insurance policies, though, that is not a problem anymore.
What are the Responsibilities of the Title Company?
The responsibilities of the title company vary, depending on the specific situation. Remember, when a homeowner refinances a mortgage, even if they work with the same lender who holds the current mortgage, that lender generally hires a title company to do research. The goal of the research is to confirm that the person applying for the refinance is the legal owner of that property.
The process may reveal important information the lender needs to know. For example, a title search could show that the property owner has a judgment against them. That might mean the owner would need to pay off the judgment before they would be able to start the process of refinancing.
Commonly, title companies have a lot of involvement in the process of closing. When a lender and property owner reach an agreement on a refinance, the settlement statement is prepared by a title company. That document is designed to provide information about how the loan funds will be given to the borrower of the money. It shows how the funds will be used, too. For example, if a loan is being used to pay off bills, the settlement statement will list which bills are being paid, and their amounts.
Occasionally, title companies also get involved in the disbursement of funds. Sometimes, lenders provide the loan to a title company, instead of paying it straight to the person who's borrowing it. That generally takes place if there are other parties in addition to the borrower who are being paid from the proceeds of the loan.
Overall, a title company can serve as the go-between for parties to a refinance. That might include both lenders and borrowers, but also could include surveyors, government employees, attorneys, and other parties. Because there could be many steps in a refinance, and issues could occur before the loan closes, it's easier to have a neutral party working to get through the process smoothly.
The benefit for every party involved is the main reason to work with a title company to refinance a house. By helping with specific steps and coordinating with people and companies, a title company is able to help make refinancing more efficient.
That's the goal for us, here at Metro Title. We know that mortgage refinancing in Utah can sometimes feel overwhelming. Every step of the way, we can work with all parties to the refinance, to make things easier, better, and more efficient for everyone. If you're ready to learn about the process, and how we're able to help, reach out to us at Metro National Title today.
