mortgage refinancing

How does refinancing work?

Okay, so you have decided to refinance your current mortgage – congratulations! Perhaps you are doing this to save money on your monthly mortgage payment. Or perhaps you are interested in consolidating debt or moving from a 30 year mortgage to a 15 year mortgage. No matter what the reason, you have made a decision to get a new loan that will pay off your existing mortgage.

Chances are that you have chosen another mortgage lender with whom to proceed with the refinance. If this is the case, you are going to need to provide them with certain items:

1. Two years of income tax returns;
2. Employment verification;
3. Credit report, which will be completed by the mortgage company;
4. Appraisal on your home, which will be completed by the mortgage company;
5. Information about any money which you plan to put down on your mortgage.

If you owe less than twenty percent in equity, you may opt for a “no doc” refinance. With a no doc refinance, you will not have to provide income tax information or employment verification. This can be both time saving and beneficial, particularly if you are in the process of changing jobs or are self employed.

How does refinancing work

You will probably work with a mortgage representative who will tell you what you will need and what fees will be involved. They should be able to give you a rough estimate of what your new monthly mortgage payment will be. Assuming that you are going no doc, they will take down all of your information over the telephone regarding your current income, place of employment and current debt. They can then proceed with doing a credit check on you as well as ordering an appraisal. They will also order a title report on your property and a lender policy. This is the only way the lender can be certain that you are, in fact, the owner of the property and entitled to refinance. This is also how they discover if there are other liens on the property in addition to your first mortgage. If you have more than one mortgage on your property, this will reflect on the title commitment that the lender receives.

Because many companies are so eager to make loans to new customers, many are paying for the credit check, application fee and even the title commitment themselves. The fees are incorporated into the loan somehow, usually in the interest rate which is a tiny bit higher than those in which you will pay for these fees up front. In many cases, however, it is worth it to allow the lender to absorb the fees. Fees that are often attributed to refinancing include the following:

1. Appraisal Fee. This is the fee that the appraiser will charge to determine how much your property is worth. This can run anywhere from $100 to $500, depending on what type of appraisal the mortgage company asks for. Some companies will settle on a drive by appraisal in which the appraiser does not even enter the home, but uses comparisons of properties similar to yours in the area as a yardstick to determine what your property is worth. A drive by appraisal is much cheaper than a regular appraisal in which the appraiser has to measure rooms and enter your home.

2. Credit Check. In many cases, this can be waived. A credit check usually runs anywhere from $30 to $100. Any more than that should make you suspect. A credit check will pull data from the three main credit reporting agencies in the United States, Experian, Trans Union and Equifax, and will reflect any problems with your credit.

3. Title examination fee. Your title report will list everything that has been recorded against your property since inception. This will show your current mortgage and any other liens recorded. It will also state the rightful owner of the property and if you have any judgments against you. The title company will be insuring to the mortgage company that they have done a proper search and will issue a policy to them. In many cases, the fee for the title policy will be picked up by the lender, but somehow passed on to you.

4. Application Fee. This is essentially the fee that the lending company charges to proceed with your application. Other fees that may be included are document preparation fees. Many of these fees can be eliminated and are negotiable with the lender. If you are seeking to refinance, look for a lender who is willing to eliminate any document preparation or application fees. Application fees are usually around $300 and the standard document preparation fee is around $75.

5. Recording Fees. Your old mortgage company will issue a release of the mortgage. This must be recorded in the county where your property is located so that it reflects on your property. In some cases, the release will come to you in the mail. You will have to make sure that you record the document with the county recorder. It will also be necessary for the new mortgage company to record the mortgage and the note against your property. Recording fees vary from county to county and generally run about $25 for each document.

Depending upon the package offered by your lending company, you may be able to eliminate some or all of the fees normally charged to refinance. Unlike when you purchased your property, you will not need a land survey or proof that you have the money for a down payment and an approved contract so some documentation can be avoided. You should not need an attorney to refinance your property. In most cases, the closing can take place either at your home or in the office of the lender.

Refinancing can be a very simple procedure. You will be required to sign many different documents, just as you were when you purchased your property. You will have an opportunity to review the documents you are to sign prior to the closing. If you have any questions about the documents that you do not want to ask the lender, or if something does not seem quite right to you, you can ask the advice of an attorney. Most refinances, however, go off smoothly and without a hitch. The time frame from application to closing is usually only a matter of a few weeks.

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