When most consumers purchase a home, they obtain conventional financing for the purchase. This often takes the form of a 30-year, fixed rate loan. In order to secure the loan made to you, the bank files a mortgage with the register of deeds. This document tells the world that the bank has a first-place lien against the house and if any other creditors file a lien, that lien will be inferior to the first-place loan. Now, let’s say that the same homeowner would like to make improvements to their home, add a pool or build a garage and would like to borrow additional money to do so. The homeowner may also want to borrow funds for reasons unrelated to the home such as consolidation of credit card debt, assisting a child with college tuition or a business venture.
So, rather than to refinance the entire home loan and file a new mortgage, etc, to account for the increase in the loan, a bank will often file a second mortgage. This can also take the form of a home equity line of credit type mortgage (HELOC) which is also usually a second mortgage as well. The difference is typically the bank will automatically release a second mortgage upon payoff. With a HELOC, the bank will keep the mortgage filed and the note open to allow a consumer to re-advance funds as needed. Only upon request of the homeowner will the bank release the mortgage upon payoff. This saves the costs and expense of making a new loan every time a homeowner wants to borrow funds.
HELOC’s and second mortgages can be obtained with the bank that made the first purchase loan or with a different institution as selected by the homeowner. The bank handling the loan will usually order title insurance to insure that the mortgage is secured against all liens, besides the first place mortgage. If a consumer with a second place mortgage or HELOC later decides to sell the real estate, the title company simply pays off the second mortgage the same as it pays the first at closing. The only additional step is to request additional payoff information. Of course, there are many different types of second mortgages and HELOC’s. it is a good idea to discuss options with a finance professional.
Here at Tallgrass Title, we deal with second mortgages and HELOCs on a daily basis. Should you have any questions during your purchase, sale or refinance, feel free to contact our title professionals. We are here to help, its our job!
Last week we officially opened a Manhattan, Kansas office. This move follows requests from real estate professionals to locate an office to better serve their regional needs. You asked, we listened! Our Manhattan office (TGT MHK) is located at 210 N. 4th, Suite A in the Hartford Building. We are fully staffed Monday – Friday from 8:00 am to 5:00pm and are open over the noon hour. A drop box is located on the front of the building for after hours drop-offs. Both the Wamego and Manhattan offices are equipped to deal with closings, escrow deliveries, deed packet deliveries and notary services. Additionally, TGT MHK will continue to offer free courier service in the Manhattan area as well as mobile closings. We are here to serve your needs!
At Tallgrass Title, we love feedback about how we may better serve your needs. Feel free to speak with any of our title experts about your needs as a real estate professional.
When folks purchase residential real estate and require financing, most likely an “escrow account” will be established during the loan process for the payment of insurance and taxes. This is different than “putting a contract into escrow.” “Putting a contract into escrow” means that the contract signed by the buyer and seller has been delivered to a title company to begin working towards a transaction. An “escrow account” established for the payment of insurance and taxes basically means that you will make a monthly mortgage payment to your bank and a portion of that payment will be set aside to pay your homeowners insurance and real estate taxes automatically. This is done for a couple of reasons. First and foremost, lending regulations require a bank to establish an escrow account with most residential real estate loans. Secondly, because the home is the bank’s security for the repayment of the loan, it wants to make sure that its security is protected. Therefore, the bank wants to make sure the home is insured against loss and they also do not want the home taken away for the failure to pay the real estate taxes.
During the loan process, you will be informed of how much the monthly insurance and taxes escrow will be. Also, because your transaction will most likely not happen on the 31st of December, some proration of taxes will be required. Proration means that the seller will be responsible for the taxes while he/she owns the home and you will pay the taxes when you own the home. However, taxes are only payable at the end of the year. Therefore, the seller gives a portion of the taxes to the buyer and the buyer pays all the taxes at the end of the year.
Also, the bank will collect additional funds to be placed into the escrow funds at the time of closing your loan. Those beginning funds will be added with the monthly payments to pay the insurance and taxes when they come due. The bank handling the escrow account will receive the yearly bill for insurance and taxes and pay them when each comes due. You will still receive a statement from the County Treasurer and your insurance provider, but this is simply for your information. Additionally, you are always welcome to choose or change your homeowner’s coverage and insurance company.
Upon selling your house, you may have funds left in the escrow account that will not be needed to pay any future insurance or taxes. These funds will be returned to you following the sale of your real estate. It is important to work with the escrow service to make sure they are mailed to your new address. Questions about escrow accounts, homeowner’s insurance coverage and real estate taxes during the loan process are quite common and can seem complicated. If you have questions, speak with your banker or our closing agents here at Tallgrass Title. We are happy to explain the process. It’s our job!