When refinancing a first mortgage while holding a home equity loan or second mortgage with Verity Credit Union, a subordination agreement becomes an essential part of the process. Subordination allows the new primary mortgage to retain its first-lien position, while Verity agrees to remain in second position. Understanding Verity Credit Union’s subordination requirements is crucial for homeowners planning to refinance without paying off or closing their existing home equity line of credit (HELOC) or second loan. This topic explores the specific guidelines, procedures, and documents needed to navigate Verity’s subordination process effectively.
What Is a Subordination Agreement?
Definition and Purpose
A subordination agreement is a legal document that rearranges the priority of liens on a property. Normally, liens are prioritized based on the date they are recorded. However, when a homeowner refinances a primary mortgage, the new loan is recorded after existing liens, which could disrupt its status as the first lienholder. The subordination agreement ensures the new lender stays in the first position, while Verity Credit Union retains a subordinate role.
Why It Matters in Refinancing
Lenders of new first mortgages require that their loan be in first position to reduce risk in the event of default. Without subordination, Verity’s loan could move up in priority, complicating the loan approval process. The subordination document resolves this by having Verity agree to maintain its lower-ranking lien.
Verity Credit Union’s Subordination Requirements
Eligibility Criteria
Verity Credit Union evaluates subordination requests based on several key factors. Not all requests are automatically approved. Below are some general eligibility considerations:
- The first mortgage must be for the same borrower(s) on the Verity home equity account.
- The new mortgage must not increase the risk to Verity’s secured interest.
- The combined loan-to-value (CLTV) ratio must typically not exceed Verity’s maximum threshold, often around 85%.
- The borrower must be current on all Verity accounts and in good standing.
Situations That May Be Declined
Verity may decline a subordination request in certain cases, including:
- The new first mortgage increases the overall indebtedness significantly.
- CLTV exceeds Verity’s allowable limits.
- Borrower creditworthiness does not meet internal standards.
- Missing or incomplete documentation from the borrower or new lender.
Required Documentation
Standard Document List
To process a subordination request, Verity Credit Union typically requires the following documents:
- Completed Subordination Request Form (provided by Verity).
- A copy of the new first mortgage loan estimate or closing disclosure.
- A copy of the new lender’s payoff demand or final loan terms.
- A copy of the appraisal report or automated valuation model (AVM) reflecting current home value.
- A copy of the new lender’s subordination agreement template (if required).
- Title commitment or preliminary title report listing all current liens.
Appraisal or Property Valuation
In most cases, Verity will require recent proof of property value to calculate the CLTV ratio. This can be in the form of a full appraisal or an AVM. The property value directly impacts the likelihood of approval for subordination.
Processing Time and Fees
Typical Processing Timeline
Verity Credit Union generally processes subordination requests within 10 to 15 business days, depending on the completeness of the submitted documentation. Delays can occur if forms are incomplete or additional verification is needed from third parties, such as the title company or first mortgage lender.
Applicable Fees
As of recent practices, Verity may charge a processing fee for subordination requests. The fee amount varies and may range from $100 to $200. It is usually paid upfront or included in the loan closing costs, depending on the refinancing setup. Borrowers should confirm the current fee structure directly with the credit union.
Step-by-Step Subordination Process
How to Submit a Request
Here’s a typical step-by-step outline of Verity Credit Union’s subordination process:
- Contact Verity to obtain the Subordination Request Form and instructions.
- Complete all required borrower and lender sections.
- Collect all supporting documents, such as the appraisal, title report, and closing disclosure.
- Submit the full subordination request package to Verity, usually by mail or secure upload.
- Wait for the review process, which includes internal underwriting and CLTV analysis.
- Receive approval or denial notice, typically within two to three weeks.
- If approved, Verity signs the subordination agreement and returns it to the title company or lender.
Communication During Review
Borrowers or their mortgage brokers may be contacted during the review process for clarification or to submit missing documents. Staying responsive can significantly reduce delays. It is advisable to maintain open lines of communication with both Verity and the new mortgage lender.
Impact on Existing Home Equity Loan
No Rewriting of the Loan
A subordination agreement does not change the terms of your existing home equity loan or HELOC with Verity Credit Union. It only adjusts the lien position. Payments, interest rates, and access to credit lines remain the same unless the borrower seeks a refinance of the second mortgage separately.
Possible Temporary Freeze
In some cases, Verity may temporarily freeze access to the HELOC during the refinancing process. This helps protect the collateral and ensures that the CLTV does not unexpectedly change before the first mortgage closes. Access is usually restored after the subordination is completed.
Tips for a Smooth Subordination Experience
- Start the process early at least 30 days before your refinance closing.
- Double-check all documents for accuracy and completeness.
- Provide updated contact information for all parties involved.
- Work closely with your new lender to coordinate timelines and paperwork.
Understanding Verity Credit Union’s subordination requirements is a key step for any homeowner looking to refinance their first mortgage while maintaining an existing second lien. Subordination protects the lender’s interest while allowing the borrower to secure improved loan terms on their primary mortgage. By following Verity’s process closely, submitting accurate documentation, and planning ahead, borrowers can ensure a smoother transition and avoid costly delays. Always confirm the most up-to-date subordination policies with Verity directly, as credit union guidelines may evolve over time based on market conditions and internal lending standards.