Refinancing a home is a lot like taking out a first mortgage on the home. You will have to go through much of the same qualification process, you’ll have to file similar paperwork, and you’ll have to sign plenty of documents. You’ll also be required to pay many of the fees you paid with the first loan. All of this is necessary because when you refinance you are more or less taking out a new loan on the home you already own – you will have to qualify for it. Because you’ll be paying many of the same fees, you’ll want to know what the refinance closings costs will be so you can plan ahead and make sure the refinance will still be worth it.
Fee Requirements that Add Up
When you apply for the refinance you’ll have to provide documentation to the lender that you are in a place financially where you will be able to handle the demands of the loan you are applying for. He will also get his own documentation that shows that you are responsible with your finances. Yes, he’s going to get a credit report. You’ll be charged the fee for this. You may also be required to get an appraisal on the home, even if you had it appraised originally for the first loan. This will run a few hundred dollars and will come out of your pocket.
In addition to the appraisal and credit report fees, you’ll have the application fee and the loan-origination fee. Both of these are determined by the lender. The application fee is often a couple hundred dollars and the loan origination fee is typically about 1% of the loan value. In some cases the lender will require a home inspection. If this is the case, that fee will be passed on to you. You’ll probably end up paying a couple of hundred dollars.
Before your lender will approve the refinance he will do a title search on your property, making sure there are no discrepancies that he’s going to be taking responsibility for. This title search is going to be another fee that you’ll have to pay. Typically this one is anywhere from four to six hundred, although most of the time this amount pays for title insurance as well.
With all of these fees combined you are in the thousands, depending on the loan-origination amount. Unfortunately, these are only part of the fees required before closing.
Additional Refinance Closing Costs
The closing costs mentioned above are the fees you’ll end up paying so the lender can get the information he needs. They aren’t the only fees by any means. Before the loan is completed it will be sent to an underwriter. He has to approve the loan and sign off on it before it proceeds to the next step. Underwriters ensure that the loan meets the standards and requirements that have been set up for approval. There is a fee attached to this service, which will be part of the refinance closing costs.
Many homeowners have to pay an escrow deposit as well, which is often in the thousands and may cover a few months rent and insurance. Insurance is an additional fee that is required on home loans and you may have to pay part of it up front.
Before the loan is approved the lender will have it looked at by a lawyer – you may want to as well so you know exactly what you are agreeing to. Most of the time the fees charged by the lawyer are passed on to the homeowner as part of the refinance closing costs.
Last but not least are the points that are paid out at the beginning of the loan. A point is typically about 1% of the loan and it is paid to reduce the interest up front. These may not be required by the lender, but if you choose to pay them they will add additional thousands to the refinance closings costs, but by paying the points up front you can shave off thousands of in interest, which ultimately saves you money in the long run.
Every lender has a different set of fees, which is why it’s important to shop around when refinancing so you can find the lender that will give you the best deal, both with the interest rate and with any additional fees. Too often homeowners refinance and the fees counteract any benefit they would have gotten from the refinance. Don’t be one of these homeowners. Know before or you will end up paying price.