Keeping Costs Low When Refinancing.
If you bought your home from seller who offered you owner financing, you probably got a higher interest rate than if you were to have gone through a traditional lender. Refinancing now may be prudent. If you decide to refinance your home, interest rates are still relatively low and now is a great time to explore your options. However, it is important to keep in mind that there will be closing costs associated with any mortgage. Be aware of what costs are involved and how to keep these costs down.
Common lender closing costs when refinancing
- Escrow and Title Fees
- Appraisal Fees
- Credit Fees
- Points
- Insurance fees
- Lending fees
- Mortgage Broker fee
Escrow and title fees
When most people purchase a home, they pay for the title insurance policy. However, when you refinance, you will need a new policy. You can probably talk to your lender about lowering this fee. You can ask for a “re-issue rate” on your title insurance if you bought your home less than 10 years ago. Escrow is the account lenders open in order to pay your property taxes and insurance with money you send them along with your mortgage payment. As far as escrow is concerned, you can probably lower the cost if you make a big down payment and pay the property taxes yourself.
Appraisal fees
In order to evaluate whether your home is worth the loan amount, lenders use a professional appraiser, and you in turn, pay for it through a fee. It’s best to ask to see a receipt of payment for the appraiser so you know the actual cost.
Credit fees
Some lenders will ask for a full residential mortgage credit report; instead of a “tri-merge” that comes from the big three credit bureaus. A residential mortgage credit report is more expensive because all the items on your credit report are verified. Again, ask for the receipt to verify actual cost.
Points
Points also go by the name “Loan Discount,” and essentially, if you buy a point, it will knock off some of your interest rate. A point is one percent of the purchase price, and each point can take off up to .25 percent of the interest rate. So let’s say your house is $100,000 and the interest rate is 3.75 percent, you would pay $1,000 for one point, and pay an interest rate of 3.50 percent. You can buy more than one point if you so desire. If you shop around and find a low enough interest rate, you can probably forgo buying points.
Insurance fees
Of course, lenders will want you to have an insured home against disaster. Depending on where you live, you may have to buy flood and wind insurance. Sometimes a lender will try to get you to pay for a year’s worth of insurance in advance. Ask questions about costs and shop around insurance companies before agreeing. Sometimes, it is possible to pay only a couple of months in advance and still satisfy the lender.
Lending fees
These fees are usually funding, administration, processing, underwriting, document preparation fees that can come lumped together. These fees have been notoriously referred to as “junk fees,” as you are being charged for something the lender has to do anyway. Try to negotiate these fees or get them waived.
Mortgage broker fee
If you decided to hire a broker, you will have to pay commissions. Commissions usually run up to 6 percent but this fee can be negotiated in many circumstances.
Three most important things to remember!
- Try to close your refinance deal at the end of the month if possible — lenders collect interest for the month, and if you close near the end of the month, you save.
- Read and negotiate the Good Faith Estimate (GFE) — you can learn about all the different fees and question them.
- Be knowledgeable — shop around and collect information so you can have a strong foundation for negotiation.
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This information is intended to be used as a general guide. It is not intended to constitute legal advice and is not a substitute for the advice of an attorney. While every effort has been taken to present the information accurately, this document may not be infallible. No warranty is made that these materials are current, complete, accurate, or suitable for any particular purpose. You should seek advice from your attorney before proceeding with any real estate transaction.
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How To Keep Costs Low When Refinancing Your Home, Shayla Mars, September 18, 2013, Investopia, http://www.investopedia.com/articles/my-bank-tracker/personal-finance/091813/how-keep-costs-low-when-refinancing-your-home.asp, Retrieved October 1, 2013.
