5 Things I Had to Google While Refinancing My Home
Buying a home for the first time was confusing enough. But then the Coronavirus pandemic hit and interest rates dropped to record lows. I started seeing headline after headline about refinancing. “Is this something I should be doing?” I thought to myself. I’d purchased my home in Colorado just a year before, was it too soon to refinance?
As it turns out, refinancing did make sense for my situation—something I only learned after some pretty extensive research. Even after I decided to move forward, I kept on researching, largely because my lender talked a mile a minute and threw out tons of acronyms that whizzed right over my head.
If you’re as perplexed about refinancing as I was, allow me to help—here are a few of the things I had to Google before, during, and after the process.
Who are Fannie and Freddie?
I’m almost embarrassed to admit that I really had no idea who Fannie and Freddie were (oops!). But I have a feeling I’m not alone in this one.
Here’s the scoop. Fannie Mae and Freddie Mac are government-sponsored enterprises that help keep the U.S. housing market running smoothly by buying mortgages from banks and lenders on the so-called secondary market. In essence, Fannie and Freddie make sure banks have enough cash in order to be able to offer you an affordable mortgage. They either hold onto the mortgages themselves or package them together into mortgage-backed securities, which investors can buy. Fannie tends to buy mortgages from large banks, while Freddie buys them from smaller lenders.
What is an appraisal waiver?
Here’s another term that threw me for a loop: An appraisal waiver. Rather than ordering a traditional appraisal to determine the market value of my home, my lender offered to waive the appraisal and instead calculated the value of my home using available data.
Appraisal waivers, also known as property inspection waivers, have become more common during the coronavirus pandemic, since it’s not very safe to have an appraiser enter multiple homes on the same day. An appraisal waiver can save you money since you’re not paying for an appraisal ($625 in my case) and help speed up your closing.
What is a loan payoff?
Refinancing involves replacing your existing home loan with a brand new one, ideally with better terms. As part of that process, your new lender will pay off your old loan—literally, write a check for the remaining balance on your mortgage. This is what’s known as a loan payoff, and it happens just before you close on your new loan. It’s confusing because, for a few days, you’re sort of in mortgage limbo while you transition from one loan to the next. But it’s all just a normal part of the refinancing process. Once your old loan is paid off, you can start fresh with your new loan and start taking advantage of the better terms.
What is a demand feature?
While scanning the billions of pages of documents associated with my refinance (OK, maybe I’m exaggerating a little bit here!), I saw the phrase “demand feature” with a box checked “no” next to it. What does this mean?
A mortgage with a demand feature means that your lender can require you to repay the loan for any reason, at any time. As you can imagine, that’s a pretty scary concept—not very many people have hundreds of thousands of dollars just lying around. Fortunately, demand features are not all that common, but this is a good reminder to read all of the documents your lender sends you very carefully—you want to be extra sure you don’t accidentally overlook something.
What is a notary signing agent?
Because I closed on my new loan during the pandemic, there wasn’t a big closing meeting around a conference table with lots of people. Instead, a notary signing agent came to my house—it was just the two of us. We sat at my kitchen counter and she explained all of the various closing documents to me before I signed them.
But what’s a notary signing agent, anyway? You’ve probably heard the term “notary public” before. This is a person given authority, often by your state government, to serve as an impartial witness for important moments that involve signing documents. A notary signing agent is a more specific type of notary, one who understands the ins and outs of real estate transactions. And they play an important role during closing, too. These independent agents verify your identity, make sure you understand what you’re signing, and ensure that you’re signing of your own free will.