What will refinancing cost?
It is not unusual to pay 3 percent to 6 percent of your outstanding principal in refinancing fees. These expenses are in addition to any prepayment penalties or other costs for paying off any mortgages you might have.
Refinancing fees vary from state to state and lender to lender. Here are some typical fees and average cost ranges you are most likely to pay when refinancing.
Tip: You can ask for a copy of your settlement cost papers (the HUD-1 form) one day in advance of your loan closing. This will give you a chance to review the documents and verify the terms.
Application fee. This charge covers the initial costs of processing your loan request and checking your credit report. If your loan is denied, you still may have to pay this fee.
Cost range = $75 to $300
Loan origination fee. The fee charged by the lender or broker to evaluate and prepare your mortgage loan.
Cost range = 0% to 1.5% of the loan principal
Points. A point is equal to 1 percent of the amount of your mortgage loan. There are two kinds of points you might pay. The first is loan-discount points, a one-time charge paid to reduce the interest rate of your loan. Second, some lenders and brokers also charge points to earn money on the loan. The number of points you are charged can be negotiated with the lender.
Cost range = 0% to 3% of the loan principal
Tip: The length of time that you expect to keep the mortgage helps you determine whether it is worthwhile to pay points up front to reduce your interest rate. Unlike points paid on your original mortgage, points paid to refinance may not be fully deductible on your income taxes in the year they are paid. Check with the Internal Revenue Service to find the current rules for deducting points.
Appraisal fee. This fee pays for an appraisal of your home, in order to assure the lenders that the property is worth at least as much as the loan amount. Some lenders and brokers include the appraisal fee as part of the application fee. You are entitled to a copy of the appraisal, but you must ask the lender for it. If you are refinancing and you have had a recent appraisal, you can check to see if the lender will waive the requirement for a new appraisal.
Cost range = $300 to $700
Inspection fee. The lender may require a termite inspection and an analysis of the structural condition of the property by a property inspector, engineer, or consultant. Lenders may require a septic system test and a water test to make sure the well and water system will maintain an adequate supply of water for the house. Your state may require additional, specific inspections (for example, pest inspections in southern states).
Cost range = $175 to $350
Attorney review/closing fee. The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender.
Cost range = $500 to $1,000
Homeowner’s insurance. Your lender will require that you have a homeowner’s insurance policy (sometimes called hazard insurance) in effect at settlement. The policy protects against physical damage to the house by fire, wind, vandalism, and other causes covered by your policy. This policy insures that the lender’s investment will be protected even if the house is destroyed. With refinancing, you may only have to show that you have a policy in effect.
Cost range = $300 to $1,000
FHA, RDS, or VA fees or PMI. These fees may be required for loans insured by federal government housing programs, such as loans insured by the Federal Housing Administration (FHA) or the Rural Development Services (RDS) and loans guaranteed by the Department of Veterans Affairs (VA), as well as conventional loans insured by private mortgage insurance (PMI). Insured loans and guarantee programs generally apply if the amount you are borrowing is more than 80% of the value of the property. Both government and private mortgage insurance cover the lender’s risk that you will not make all the loan payments.
Cost ranges: FHA = 1.5% plus ½% per year; RDS = 1.75%; VA = 1.25% to 2%; PMI = 0.5% to 1.5%
Title search and title insurance. This fee covers the cost of searching the property’s records to ensure that you are the rightful owner and to check for liens. Title insurance covers the lender against errors in the results of the title search. If a problem arises, the insurance covers the lender’s investment in your mortgage.
Cost range = $700 to $900
Tip: Ask the company carrying your current title insurance policy what it would cost to reissue the policy for a new loan. This may reduce your cost.
Survey fee. Lenders require a survey, to confirm the location of buildings and improvements on the land. Some lenders require a complete (and more costly) survey to ensure that the house and other structures are legally where you say they are. You may not have to pay this fee if a survey has recently been conducted for your property.
Cost range = $150 to $400
Prepayment penalty. Some lenders charge a fee if you pay off your existing mortgage early. Loans insured or guaranteed by the federal government generally cannot include a prepayment penalty, and some lenders, such as federal credit unions, cannot include prepayment penalties. Also some states prohibit this fee.
Cost range = one to six months’ interest payments
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