There comes a time that you may consider refinancing your home. Common questions include, what does refinancing mean? What does a refinance loan mean? Do I need a title agent? What role does a title company play in the process?
We understand this can be a confusing experience if you’ve never been through it before. Read along and this can help you better understand the process, ensuring you know not only what refinancing involves, but also how and why a title company is important in this.
HOW DOES REFINANCING WORK?
Refinancing involves coordinating with a lender to reduce your mortgage payments.
Additionally, a person might refinance their home if they recently got a divorce and want to remove someone’s name from the mortgage. Another reason someone may choose to refinance may be due to improvements in their credit from the time they first purchased their home. Doing so may help them obtain a lower interest rate.
WHAT DOES A REFINANCE LOAN MEAN?
To refinance a home, it’s typically necessary to pay off the original loan first. A refinance loan is a second loan used to pay off the first one. Meaning, sometimes a borrower never receives any funds directly when refinancing their home. There are cases when the entire amount of the second loan is transferred directly to the lender holding the first loan.
WHAT IS THE AVERAGE CLOSING COST OF A REFINANCE?
The average closing cost of a refinance is 1.5%. That means for a $250,000 mortgage, the average closing costs for a refinance would be $3,750. That said, there are many different factors which can impact the cost. Everything from the type of loan to your credit score can affect what you may pay. It’s important to remember that no two cases are exactly alike.
DO YOU GET A NEW TITLE WHEN YOU REFINANCE?
When you want to refinance a home, a title company will search the public records to confirm ownership. Usually, you will not be issued a new title at the end of the process. An owner’s policy is only brought at the original closing. For each separate loan transaction, only a loan policy is purchased. If you are confirmed as the current property owner, you can submit your owner’s title policy to the title company to acquire a reissue credit.
That said, there are instances when a new title is provided at closing, which occurs if the “current vesting” (the name of the property owners) is changing. For example, if the new mortgage doesn’t include the name of your ex-spouse, you may get a new title.
WHY DO I HAVE TO PAY TITLE INSURANCE ON A REFINANCE?
You will pay a one-time fee for your title insurance. This occurs at closing. In exchange, you get proof that you are the legal owner of your property. This ensures past events that you and others may not be aware of can’t result in loss of ownership. Additionally, both lenders and owners usually purchase title insurance at the closing, so both parties are protected.
It’s also worth noting that mortgages are backed by securities. That means it’s important that investors be confident they’re safe. Title insurance provides this confidence. Without it, it would be difficult to back mortgages with the necessary assets. Investors would be too wary of the risk. That’s not a problem when you have title insurance.
WHAT ARE THE TITLE COMPANY’S RESPONSIBILITIES?
A title company’s responsibilities may vary from one situation to another.
Again, when you refinance a mortgage, even if you do so through the same lender you initially worked with, the lender will often hire a title company to conduct research. Their goal is to confirm that an applicant is truly the legal property owner.
This process may also reveal information that a lender might find relevant. For instance, through a title search, a lender might discover the property owner has had a judgment filed against them. The lender could require the owner to pay the judgment before they can begin the refinancing process.
Title companies are also commonly involved in the closing. When a lender has reached an agreement with a property owner and is ready to provide them with a loan, a title company prepares the settlement statement. This document explains how loan funds will be disbursed to the borrower. It also lists how the funds will be used. For instance, if a loan is being issued for the payment of several bills, the settlement statement will list them accordingly.
Sometimes the title company is involved in the disbursement of funds as well. There are instances when a lender will provide the agreed-upon loan to the title company instead of directly to the borrower which often happens when the settlement statement include additional parties besides the borrower who are also entitled to payment.
In general, the title company may also serve as a sort of liaison between the various parties involved in a refinancing. These can include not only borrowers and lenders, but attorneys, surveyors, government employees, and more.
Because a refinancing can involve many steps, with many issues to resolve before closing can occur, it helps to have an intermediary who works with everyone to move the process along smoothly.
That’s one of the primary reasons for working with a title company during refinancing is beneficial to all parties involved. By assisting in key steps and coordinating with various organizations and individuals, title companies help to make refinancing more efficient.
That’s our goal at A-1 Title Services. A-1 Title Services has been in business since the year 2000 representing ourselves as number one stop for real estate settlement and escrow services in South Florida. We understand that refinancing a home can seem like a lengthy and overwhelming process. Every step of the way, we work with all relevant parties to help make it easier. To discover more about what we can do for you, contact us today.