How to Close & Refinance Mortgages
A person refinancing a home is often the last to know what is going on throughout the closing and refinancing process. This is because most of the leg work is done by the mortgage company and title company, and little is required from the borrower before the signing process.
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Things You'll Need
- Financial information
- Tax returns
- All persons with interest in the property sought to be refinanced
Instructions
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Refinancing
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Shop around with a few lenders for the best interest rates and terms for your new loan. Depending upon market rates, you may be able to sustain a lower interest rate than your current rate.
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Ask yourself: "Will the new mortgage loan put me in a better position than I am currently in?" This may be done by reviewing the Good Faith Estimate (GFE) provided to you by your lender. Examine the costs involved with the refinance, as well as the interest rate that you are receiving, and determine how much of a difference there will be in your monthly payment.
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Lock in with the lender at an agreed interest rate and term. This can be done by a signed agreement or by making a non-refundable payment toward the appraisal, and/or processing fee. At such time, the lender gets the appraisal done to determine whether there is enough value in your home to support the loan and sets a closing date. The closing date is usually before your interest rate under the lock-in agreement expires.
Closing Process
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The lender orders a title search. The title company searches the county recorder's files where the property is located to determine who owns the property and what if any liens are present. Once the title search is complete, the title company issues a title commitment which summarizes its findings and informs the lender as to which conditions must be met before the title company can insure the lender's interest in the property. These conditions may include: payment of existing mortgages, Internal Revenue Service liens, medical liens or judgments. Other conditions that can muddy the title include marital disputes and claims of interest by heirs.
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The title company must clear all of the conditions that can potentially interrupt the lender's ability to secure its interest in the title. If the title company discovers that certain items have already been paid off and simply were not removed from the title, the title company must obtain satisfactory proof that these items were paid before issuing the lender's title policy.
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Once the title is completely clear, the title company schedules and coordinates the closing process. This can be done in the title company office or an attorney's office.
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At the closing, the title agent oversees the borrower's signing of all of the lender's documents. Each document is explained to the borrower as the borrower signs. Any questions or unresolved issues may be answered during the closing. After signing the documents, the borrower has three days to rescind the loan. This three=day period is called the recission period. If the borrower decides to cancel the loan, it must be done within the recission period.
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Once the recission period has expired, the title company must fund the loan. The lender wires money to the title company and the title company pays off any existing mortgages, liens or other costs that are included on the settlement statement. Once all funds have been disbursed in accordance with the settlement statement, the refinance mortgage is almost closed.
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Finally, the title company must record the new lender's secured interest in the property with the county recorder's office and issue a title insurance policy to the lender. The refinance is now closed.
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Tips & Warnings
If you are refinancing an investment property, a recission period is usually not applicable as the recission period requirement only applies in cases where the homes sought to be refinanced are occupied by the borrower. Therefore, persons refinancing an investment property need to be sure that all issues are resolved before signing the closing documents.
The lender's title insurance policy insures the lender's interest in the property only. A borrower wanting his own interests in the property to be insured will have to purchase an owner's title policy at the closing or a few days thereafter. Typically owner's policies are not purchased during a refinance because in most cases they have already been purchased by the borrower at the time that the property was originally purchased.
