Refinancing a home isn’t a free or even cheap process. In fact, the costs of a refinance can run a homeowner in the thousands, much like a standard first-time loan. However, though you will pay in closing costs in one form or another, that doesn’t necessarily mean you won’t benefit from the refinance. Chances are you will, but you’ll want to know what FHA refinance closings costs you can expect before you head out and secure a refinance.
Fees that May Be Included in FHA Refinance Closing Costs
Refinancing your loan requires many of the same steps that you had to take when you secured the original loan. You may need to get an appraisal and/or an inspection, and your lender will have to pull the title, deal with underwriters and lawyers, and everything in between. As a homeowner you may have to pay some of those fees that the lender is faced with when trying to prepare everything for your refinance. Following is a list of possible FHA refinance closing costs.
- Lawyer fees
- Underwriter fees
- Appraisal fees
- Title insurance and title examination
- Loan origination fee
- Lender origination fee
- Credit report
This list is not fully extensive as each lender has a different set of fees that come with a refinance, but these are some of the basics that are often included in the closing costs.
Some of these fees can be reduced depending on the lender you are working with, and oftentimes they are negotiable. The exception may be the credit report and lawyer fees, which are third-party fees and out of the lender’s control. FHA lenders employ in-house underwriters which helps cut down expenses, and title companies will sometimes reduce their fees if you have them perform more than one service.
When searching for a refinance, a good way to reduce the costs is to shop around with multiple lenders. Get between three and five quotes and compare all of the details, including interest rate and applicable fees. Make sure when you get the quotes that you discuss with the lender all possible fees you will be paying. It will do you no good if you get a lower interest rate with one lender only to find that his closing costs and fees are much higher than you would have paid with a different lender. When shopping around, compare all of the numbers, from interest rate and mortgage payment, to title fees and underwriting costs. The more you know the more you’ll be able to save.
Streamline Refinances and No-Cost Options
While FHA refinance closing costs are necessary on nearly all refinances through the federal programs, there are ways to reduce or delay payment of these costs. First, you will want to look at streamline refinances. The streamline is only there for homeowners who have a current federal loan, but if you do own your home through a federal lender then you should see if this is something you can take advantage of. With the streamline you can alter the terms of your loan without going through the enter refinance process. There is often no appraisal required, it takes less time, and in some cases there are fewer fees. With this option you can only alter the terms of the home mortgage, you cannot cash out the equity.
A second way to reduce or eliminate immediate payment of your FHA refinance closing costs is to get a no-cost loan. The no-cost refinance has a slightly higher interest rate than a traditional refinance, and instead of paying the closing costs up front, they are simply rolled into the loan. This results in a slightly higher home mortgage, but if you secure a lower interest rate than the one you currently have this can offset the increase. The no-cost option is a great way to secure a refinance without paying so much out of pocket that you can’t afford to even have it done.
It’s a good rule of thumb when refinancing to compare all of your options. Look at the streamline and the no-cost options and compare them with the standard refinance, paying particular attention to your bottom line. These options are available to the homeowner as a way to adjust the terms of a loan to make them more affordable. However, sometimes in adjusting you end up paying more in the long run because you pay on a lower interest rate longer. As with any financial decision, do your homework and talk to a loan officer you can trust before you sign on the dotted line.