When you decide to refinance your home you want to do so in a way that is as painless as possible. Because of the process involved, you know you’re looking at appraisals and inspections, plenty of paperwork to sign, and possibly a hefty chunk of money up front and out of pocket. All of this combined can feel like a nasty bite. While the paperwork and inspections are necessary on most refinances, there may be ways to reduce some of the expenses, making it easier on the homeowner to use FHA refinance interest rates.
Points and Fees Raising Your Bottom Line
When you refinance you are taking out a new loan to replace the existing home mortgage. This means that it will be necessary to take many of the steps for approval that you did for the first loan. You will need to present the loan officer with your financial snapshot, you will be required to get an appraisal, inspection, pay closing costs and lawyer fees, etc. All of these requirements cost money, which adds up quickly and can negate the benefits of the lower FHA refinance interest rates. However, a lot of these fees are negotiable, meaning you may be able to reduce them or in some cases, eliminate them.
Oftentimes when you’re working with the same lender or you have one company do two of the required steps, you will be able to save money. For example, when you refinance you will have to pay application fees, appraisal fees, survey costs, and attorney fees. All of these fees are required by the lender, so if you refinance through the same lender, they may be willing to work with you. Remember, all fees are negotiable.
Application fees are negotiable if you are working with the same lender – that rapport helps. Appraisals can sometimes be done electronically if you are working with the same lender and you have a fair amount of equity. This will reduce the cost. Survey fees can be in the hundreds, but oftentimes the lender will forgive these fees because they already have the property survey from the original loan.
The last fee required by lenders, which is the attorney fee, may be waived or reduced if you skip the attorney and let the lender handle the closing. Each state has different laws regarding this, but if the laws allow it and you’re willing to read the final documents, the lender may be able to close for you, thus eliminating the attorney charges.
Another way to save money is to group services, as mentioned above. You will have to pull title and title insurance information. This can be usually be done through the same company and often the company will reduce the charges associated with this in order to keep your business.
Last but not least are the refinance points. Each one of these is equal to 1% of the loan value and they are paid out up front to reduce the interest. If you don’t pay on them you will cut your initial expenses, but it’s important to know that you will pay them over time in the interest that was not originally paid down.
When FHA Refinance Interest Rates are Worth It
Refinancing a home has the greatest benefit when the amount paid over the life of the loan is less than it would have been prior to the refinance. Reducing the fees, as mentioned above, can help you recoup your losses faster and break even on the refinance sooner. A few things you might want to consider are prepayment penalties and closing costs. These will be your biggest expenses. Some home mortgages have prepayment penalties associated with them, which means if you refinance or pay off the loan sooner, you will be slapped with hefty fees, usually in the thousands. Prepayment penalties are not a good idea on any loan, so if you can avoid having them required in the contract, do.
Closing costs are another huge expenses. In some cases you will have to pay these out of pocket, up front. They will be in the thousands. In other cases, the costs will be rolled into the mortgage. This reduces your initial bottom line, but it increases the amount of your mortgage. You will end up paying more in closing costs if they are rolled into the mortgage (because of interest), but this option does make it easier to handle the initial costs of the refinance.
Taking advantage of FHA refinance interest rates can be a great financial move, but only when the bottom line isn’t so great that it negates the benefits of the refinance. So before you sign on your new loan, make sure you’re aware of all of the costs and benefits of the refinance.