Considering doing a home refinance, to pay off debt or pull some equity for other things. If you are, you might have a lot of questions. These can include: What does it really mean to refinance? What does getting a loan for refinancing mean? What role in the process does the title company actually have?
We know that refinancing your home can be a confusing experience, especially if you haven’t done it in the past. The points addressed in this post will help you understand the process better, so you can get through it more easily. That helps ensure that you know what is involved in refinancing your property, and why you need the help of a title company to do it correctly.
How Refinancing Actually Works
When you purchase your home, you probably have every intention of making all your mortgage payments. But sometimes, things happen that make paying that mortgage more difficult. When that happens, a homeowner could decide to refinance.
A refinancing of your home involves working with the lender for a reduction in mortgage payments. Another reason a person could refinance their house is if they get divorced, and both spouses were listed on the title. Refinancing could be used to take one person’s name off the mortgage. Additionally, people often refinance if their credit has improved a lot since they purchased their home. They could end up with a much better rate of interest that way.
What Does a Refinance Loan Mean?
When refinancing your home, you will need to pay off the original loan. The refinancing loan would be used as a second loan, and it would pay off the first one. Sometimes, that is everything a refinancing does, and the homeowner doesn’t get extra money. If that happens, the lender who had the first loan will get the full amount of the second loan.
What is the Average Closing Cost When Refinancing?
On average, closing costs for refinancing are around 1.5% of the loan amount. For a mortgage that is 250,000, for example, the closing costs for a refinance would be around $3,750. However, there are plenty of factors that have an impact on the cost of closing for a refinance. The type of loan chosen, the credit score, and a lot of other things affect how much a homeowner has to pay. It’s important to keep in mind that there aren’t any two situations which are completely alike.
A New Title Isn’t Generally Part of Refinancing
When you refinance a home, the title company will perform a public records search in order to confirm the ownership of that property. Generally, you won’t get a new title when refinancing, since you already own that home. An owner’s title insurance policy is also usually only part of the original closing of the home, which would have been when you purchased it. For any other separate loan transaction, the loan title insurance policy is the only one you’ll have to buy. If you already have confirmation that you own the property, you can get a reissue credit from your title company by submitting your owner’s title policy to them.
However, it is important to note that there could be times when you might be issued a new title, instead of keeping the old one. If the name of the property owners changes, for example, a new title could be issued to you. That’s generally more common in divorce cases, when one spouse is taken off the title and the spouse remaining on the title may also change their legal name.
Paying for Title Insurance During Refinancing
Among the biggest things to know about title insurance is that it’s a lot less expensive than many other types of insurance, such as what you would purchase for your car or truck. The cost is lower, because there isn’t any monthly premium. Instead, this is a one-time amount paid at closing. After paying for the title insurance policy, you get proof you own the property and there aren’t any past claims on file against it.
Any past events that you are not aware of, or that others might not know about, can’t result in losing ownership of that property through claims on the title. Also, lenders and owners generally purchase title insurance when a property closes, so both parties have good protection. Title companies work with lenders and borrowers for the title insurance needs they have. A lender’s policy is issued by the title company to ensure the mortgage lender is protected until the borrower pays the full amount of the loan. By working with the title company on a refinance, a lender has peace of mind the same way the borrower does.
Another piece of information worth noting is that each mortgage has securities that back it up. That means investors want to feel confident that they’re putting their money toward solid securities. That confidence is provided through title insurance policies. Without proper title insurance, it would not be easy to get necessary assets to back up mortgages. Investors would see mortgages as too much of a risk, and they would avoid them. That would result in a lot fewer mortgages being issued. When homeowners have title insurance, that is no longer an issue.
The Responsibilities of a Title Company
The responsibilities of any title company are going to vary a bit, depending on the particular situation.
Remember, when a homeowner refinances a mortgage, even if they’re working with the original lender who holds their current mortgage, that lender will usually hire a title company to do research. The goal of the research is to make sure the applicant for the refinance is really the legal owner of the property they’re refinancing.
The process could also reveal important information the lender needs to know. For example, the title search could show that the owner of the property has a new judgment against them. That could mean the owner would to asked to pay that judgment before they could start a refinancing process on their home.
Commonly, title companies are also involved in the closing process. When a lender and property owner reach an agreement on a refinance of a property, a settlement statement is prepared by a title company for the closing. That document is designed to provide information on what happens to the loan funds being borrowed. It also shows how funds are going to be used. If a loan is being used to pay bills, for example, the settlement statement will list out those bills, and the money to pay them may go directly to those companies.
Occasionally, title companies are also involved in disbursing funds. There are times when lenders provide the loan to the title company, instead of paying the money to the person borrowing it. That usually happens when there are other parties besides the borrower who will be getting money from the proceeds of the refinance, such as the aforementioned bills.
Overall, a title company can serve as a go-between for all parties to a refinance loan. This can include lenders and borrowers, and can also include surveyors, government employees, attorneys, and other parties. Because there are often a lot of steps to be considered in a refinance, and there are issues that can occur before a loan can close, it is easier to work with a neutral party that can help everyone get through the process as smoothly as possible.
The benefits to the parties involved is a primary reason to let a title company help with refinancing a home. By working through the specific steps, and also coordinating organizations and people, a title company can help to make refinancing more efficient.
That is the goal we have at Metro Experience Title. We understand that refinancing in Utah can feel overwhelming. Each step of the way, we can work with all parties to the refinance, so we can make things easier for everybody. If you’re ready to learn more about the process, and how we can help, you can reach out to our professional staff at Metro Experience Title today.