Refinancing and Home Equity Line of Credit Transactions
What you may pay out of pocket to obtain a loan:
- Paying out of pocket fees or costs to obtain a mortgage is rarely in a consumer’s best interest when completing a Refinance or Home Equity Line of Credit transaction. When completing a Refinance or Home Equity Line of Credit transaction, it is always in a consumer’s best interest to roll any Lender or Third Party Settlement Charges into the new loan taken out.
- The only out of pocket cost associated with this type of transaction should be the cost of an appraisal. When completing a loan, you want to make 100% sure you are working with a lender who is HVCC compliant. HVCC or the Home Valuation Code of Conduct was passed in 2009 to protect homeowners from Lenders who did not order appraisal at arm’s length. By paying for your appraisal out of pocket and having a National Appraisal Management company complete the transaction, you are protecting yourself from a lender influencing the valuation of your property and manipulating the type of loan program for which you are ultimately approved.
Common settlement charges that can be rolled into a mortgage transaction
- Origination Charges
Every lender has a cost associated with producing a mortgage loan. To cover the cost to produce the loan and to avoid raising a consumer’s interest rate to offset those costs, lenders often times allow the consumer to finance a Processing, Administrative or Application charge into their new loan. By financing the charge into the new loan, the client avoids having to come up with money to bring to closing and is not obligated to pay higher rates to obtain a new loan.
Rolling points into your loan should always lower your monthly payments and save you money in long-term interest charges. If your Loan Officer is not able to explain and show you how financing points into your transaction saves you money both short and long-term, you should not accept a loan with points. Points are a great investment tool and when financed into a 10,15,20,25, or 30-year mortgage. By financing your points into your loan, you do not pay anything out of pocket and receive back guaranteed monthly savings/income by leveraging the equity in your home. Always ask about point options when reviewing your loan options.
- Title/Closing Charges
When a new loan is taken out on your property, it is important that a Third-Party Title Company completes a Search of Liens to ensure any loans that are being paid off and any taxes due are addressed with the transaction. The title company will ensure that payoffs are accurate, taxes are up-to-date, old liens are removed and new liens are properly recorded. This protects the lender and consumer for any future transactions that may occur with the property (i.e. the sale of the property or a future refinance). By financing the charge into the new loan, the consumer avoids having to come up with money to bring to closing.
- Escrow Account/Prepaid Interest
When a new loan is taken out on your property and you intend to have your lender send in Tax and Insurance payments on your behalf, the lender will often allow you to finance your next installment of taxes and hazard insurance payments into your new loan. By financing your tax and hazard insurance payments into your new transaction, the consumer avoids having to come up with the money needed to ensure tax and hazard insurance payments are made on time. Once your loan is closed, if you had an escrow account established with your previous lender, they will send you the balance in your escrow account within 30 days of paying off the old lien.
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