Refinance Closing
What happens at refinance closing? - (Top)
You went through closing when you bought your house, so it may seem familiar. Perhaps you may not have to pay all the same closing costs�you can bargain. The process is basically the same, but at refinance there isn�t a real estate agent or a seller present. You'll sit at a table with the closing agent who will have a stack of papers for you to sign. He or she will give you a basic explanation of each paper, but take the time to read each one completely to make sure you know exactly what you're signing. Don't hesitate to ask questions and never sign anything you don�t understand. This is a large amount of money you're committing to pay for many years!
Before you go to closing, your lender is required to give you a booklet explaining the closing costs, a "good faith estimate" of how much cash you'll have to supply at closing, and a list of documents you'll need at closing. If you don't get these items, be sure to call your lender BEFORE you go to closing.
You�ll have to provide your paid homeowner's insurance policy or a binder (a formal statement and deposit payment receipt that shows you agree to purchase insurance). The closing agent will then tell you how much you must pay for closing costs. You may not need to pay these costs up-front at a refinance closing because they are usually included as part of your loan. Be sure to find out if this is true in your case.
Once you're sure you completely understand all the documents, you'll sign the mortgage agreement. This means you agree that if you don't make your payments, the lender can sell your property and apply the sale profit to the amount you owe and add expenses. If it sells for less than the loan amount, you will still be responsible to pay the rest you owe on the loan. You'll also sign a mortgage note, promising to repay the loan.
If all closing costs haven�t been included in the loan, you'll pay them to the lender's agent and he or she will provide you with a final settlement statement detailing all the items you have paid. The deed and mortgage are recorded in the state Registry of Deeds.
How much cash will I need to bring to closing? - (Top)
If you have chosen an FHA loan for your refinance--FHA has no minimum cash investment requirement on a refinance loan. Closing costs for refinancing are typically included in the new loan amount, so you probably won�t have to bring any cash to closing. You do have the option of paying your closing costs in cash. If you choose this, let the closing agent and lender know that in advance.
A �cash-out� loan is a refinance of a mortgage at a higher principal amount to get additional money for other uses. This usually occurs when a property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash. If you�re getting a cash-out loan, the closing agent will give you a check at closing. Even on a non-cash-out loan, there may be some differences between the actual charges and the estimates. That means if you paid a little too much, you�ll get that back in a check at closing.
What are closing costs? - (Top)
Closing costs are various fees and charges you take on when you refinance your mortgage. They also include taxes and fees paid to the state and local government. Typical closing costs include:
- Items payable in connection with the loan These are the fees that lenders charge to process, approve, and make the mortgage loan. They include a loan origination fee, discount points, appraisal fee, credit report fee, and inspection fees
- Items required by the lender to be paid in advance: You may be required to pre-pay certain items at the time of settlement, such as accrued interest, mortgage insurance premiums, and hazard insurance premiums.
- Escrow account deposits: Payment at settlement to set up an escrow account for taxes and/or insurance and other items. The lender is not allowed to collect more than a certain amount.
- Title charges: Title charges cover a variety of services performed by title companies and others.
- Government recording and transfer charges: The borrower usually pays the fees for legally recording the new deed and mortgage. Transfer taxes, which in some localities are collected whenever a mortgage loan is made can be quite large and are set by state and/or local governments. You may have to purchase city, county and/or state tax stamps as well.
- These include items such as termite inspections, surveys, etc.
Why do I need homeowner's insurance? I thought FHA insured my mortgage. - (Top)
The FHA mortgage insurance protects your lender against possible loss if you get into financial trouble and can�t make your payments. It won�t protect you against loss if you have a fire, an accident or a robbery. That�s why you need homeowner�s insurance. Like anything else, it pays to shop around. The Federal Citizen Information Center has good advice about homeowner�s insurance
What is an escrow account? - (Top)
FHA requires lenders to establish escrow accounts (funds held in trust by an outside agent) and requires that borrowers make monthly payments to ensure that funds will be available to pay the following items when they come due:
- Real estate taxes
- Monthly mortgage insurance premiums
- Hazard insurance premiums (protection against fire, floods, etc.)
- Special assessments
- Ground rents
Lenders must also escrow (hold in trust) funds for those items that, if not paid, would create claims on the property with priority over the FHA-insured mortgage.
What is "RESPA"? - (Top)
RESPA stands for the Real Estate Settlement Procedures Act, a federal law enforced by HUD that deals with closing costs and settlement procedures. RESPA does these things:
- Requires that consumers receive disclosures (shared information) at various times in the process of buying a home.
- Outlaws kickbacks that increase the cost of settlement services.
- Protects homebuyers and helps them to be better home shoppers.
For more information about RESPA visit the HUD website.
Section L of the HUD-1 Settlement Statement. You also will find a sample of the HUD-1 form to help you to understand the settlement transaction.
If you want more information, or perhaps you have a question which isn�t covered here, please look for more comprehensive information under the Homebuyers Closing button on the left of this page or contact 1-800-CALL-FHA.
