Home Refinance – Consider The Costs

Home refinance fees generally run between 3% and 6% of the outstanding principal. This varies between states and from lender to lender.

Add the differences in equity, credit scores, and personal banking relationships. It becomes impossible to predict exactly what you will have to pay for your home mortgage refinance.

One thing is certain – you must consider the costs of home refinancing. Following is a breakdown the types of fees you may encounter. Terminology may vary from lender to lender.

Home Refinance Application Fee

Lenders charge the home refinance application fee to process the home refinance loan request. This includes reviewing borrower’s credit report. The lender has payroll and other hard administrative costs involved.  If your loan is denied, you will probably still have to pay this fee.

Cost range = $75 to $300

 

Title search and title insurance

The title search and title insurance are performed by a company licensed to perform these tasks. The title company may also serve as the escrow closing agent.

1. Title Search

To verify ownership of the property, lenders must search and review the property’s public records. The title search also checks for liens that might be filed against the property. Most homeowners already paid for a title search and insurance during the initial home mortgage. They do not want to pay again for the home refinance loan.

But other clouds can appear on the title after the initial purchase. Perhaps you transferred the property to a living trust, or granted an easement across your property. Maybe you  added a child or new spouse to the title through a quit-claim deed. The homeowner might not even think about these things at the time of a home refinance.

2. Title Insurance Fee

After they review the title search report, the title company issues a policy of title insurance for the home refinance loan. This charge covers the cost of the title insurance policy. Title insurance insures the policy holder for a specific amount and covers the lender’s investment in your mortgage from errors in the title report. In some cases, the title insurance policy protects against forgery or fraud relating to your property title.

Cost range = Varies based on the home value, usually $700 to $900

Tip: Will you use the same title/escrow company to process your home refinance as the initial mortgage? You may get a reduction in the title insurance fee. Be sure to ask!

 

Escrow Fees

Escrow fees are service fees charged by the title company or other escrow provider. The escrow agent is an independent third party to make sure everyone involved in the home refinance transaction does what they are supposed to.  Miscellaneous title costs include fees for drawing the documents, overnight mail and courier fees, recording fees, the county recorder office’s fee to record the deed of trust, mortgage refinance document notarization fees, and the notary’s fee. Escrow fees may be lumped with the title costs, or separated out into individual costs and fees.

 

Lending Fees or “Junk” Fees

Lenders use a variety of terms for the flat “lending” fees they charge to fund and process a mortgage. Sometimes they lump them together. These fees are commonly referred to as “garbage” or “junk” fees. Most lenders include them, and most are justified to a degree. If you see too many penny-ante charges, compare with another lender’s offer. Lending fees may include:

• Processing
• Underwriting
• Document preparation
• Administrative and funding fees
• Tax service fees
• Wire transfer fees
• Flood certifications

Cost Range = Between $650-$850

 

Points or Loan Origination Fees

One point is the same as 1% (one percent) of the home refinance mortgage loan. Points fall into two categories:

1. Discount Fees

The “discount fee” is really prepaid interest that the borrower elects to pay up front. Points are used to buy down the mortgage interest rate on the home refinance loan. If you don’t want to pay points, you can choose to pay a higher interest rate. Sometimes points are simply used to increase the lending institution’s yield beyond the agreed upon interest rate on the home refinance note. If you are in a strong position, you may be able to negotiate this down.

Cost range for Points = 0% to 3% of the loan principal

2. Loan Origination Fees

The loan origination fee is charged by the mortgage broker or lender to evaluate and prepare the loan documents. Sometimes you can avoid this charge, especially if you get an in-house home refinance loan processed through your bank. If you use a mortgage broker, this is how a mortgage originator gets compensated for services. In some cases, the discount points are worked into the loan origination fee.

Cost range of Origination Fee = 0% to 1.5% of the loan principal

 

Credit Fee

This fee to obtain a borrower’s credit report from one of the three credit bureaus usually range between $25 to $70. And then it must be reviewed before the lender will grant the home refinance loan.

If you find errors in any of these reports, costs to correct might generate even higher fees from the credit bureaus. Doesn’t seem fair, but sometimes it is not the fault of the credit bureaus, but rather, those companies that have made inaccurate reports to them. Getting an accurate credit report could make the difference in getting a home refinance loan or a better interest rate.

 

Appraisal Fees

Your lender will almost require an appraisal of the property being mortgaged. Depending upon how recently your original mortgage appraisal was obtained, and whether you use the same institution for the home refinance, you may be able to avoid or reduce this cost. Some lenders and brokers include the appraisal fee as part of the application fee. The fees charged by the appraiser to inspect property will depend upon several factors:

• Is it investment property?
• What type of property is it (single family dwelling, condominium, etc.)?
• Will it be owner-occupied? That is, will the owner live or work there, or rent it out.

A typical fee is between $300-$500 for an owner-occupied, standard-construction condominium, townhouse or single-family sub-division house. Large or complicated homes will run more.

Appraising investment properties will run a few hundred dollars in addition. The valuation of investment property includes the income stream, so the appraiser must also review a rental market survey and operating income statement.

Cost range = $300 to $700 or more

 

Inspection Fee

Prior to the appraisal, a property inspector, engineer or other consultant appointed by the lender may be required by the lender to conduct an inspection for termites and to analyze the structural condition of the property. If the property is not on public sewer and water systems, lenders may also require a septic system test and a a test of the well and water. Some states require additional, specific inspections. For instance, some southern states require specific pest inspections.

Cost range = Generally $175 to $350 but can run more

 

Survey Fee

In some cases, lenders require a survey to confirm the property boundaries and location of improvements (houses and other structures) are legally where you say they are on the land. If a survey has recently been conducted for your property, this fee is often waived for the home refinance loan.

Cost range = $150 to $400

 

Attorney Review Fees

Sometimes closings are handled directly through attorneys. Most often in home mortgage refinance, settlements are reviewed by an attorney or lawyer on behalf of the lender or escrow/title company that conducts the closing. The lawyer who reviews or conducts the closing will charge the lender a fee that is passed on to the borrower. The lender may present other legal fees and services relating to the loan. And borrowers may want to retain their own attorney for representation in the home refinance transaction.

Cost range = $500 to $1,000 but attorney review fees vary widely

 

Other Home Refinance Costs

Typical costs and fees for a home mortgage loan are shown above. Here are some other costs to consider in every home refinance, and some that will be relevant in certain cases.

Insurance and Taxes

Property insurance and real estate taxes are the homeowners responsibility in any case. Lenders will have specific requirements.

1. Real Estate Taxes

Real estate taxes are a lien on the property. Lenders always require that all outstanding or delinquent property taxes be paid at the mortgage closing. Borrowers may be required to pay current, but not yet due, real estate tax installments in escrow.

2, Homeowner’s Insurance

To insure that the lender’s investment will be protected even if the house is destroyed, a homeowner’s insurance policy (sometimes called hazard insurance) must be current at the escrow closing. Standard coverage required by the lender is usually replacement cost. However, properties located in geological hazard zones established by FEMA will be required to have a policy to cover the hazards, such a s flood insurance.

Prepayment Penalty For Home Refinance

Some lenders charge a fee if you pay off your loan early. These are usually based on interest payments, generally between one and six months.

FHA, RDS, or VA Fees

These fees may be required for some loans insured by federal government housing programs, such as:

• The Federal Housing Administration (FHA)
• The Rural Development Services (RDS)
• And the Department of Veterans Affairs (VA)

When eligible, the programs generally apply if you borrow more than 80% of the appraised property value. This mortgage insurance covers part of the lender’s risk in the event that you do not make all the loan payments.

Cost ranges = FHA 1.5% plus 1/2% per year; RDS 1.75%; VA 1.25% to 2%

 

PMI – Private Mortgage Insurance

PMI covers the same risk for private mortgage lenders as the FHA, RDS and VA loan insurance fees cover for guaranteed government programs.

Cost range = PMI = 0.5% to 1.5%

 

Free Report Explains PMI

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Shop Around For Your Home Refinance Loan

When lenders must compete, borrowers in good standing are more likely to obtain a better mortgage refinance deal. Shop around, compare and negotiate for your home refinance loan.

Start with your current lender. If you’ve been a prompt payer, in order to keep your business your lender and may be willing to reduce or eliminate some of the typical home mortgage refinancing fees outlined above. They have more latitude with certain fees, such as in-house escrow charges.

As a good resource for comparing settlement or closing costs for your home refinance, download:

Mortgage Shopping Worksheet