This is part three of our series on refinancing.
With mortgage rates at historic lows, many homeowners are considering refinancing their mortgages, wondering what it will cost. While refinancing fees vary from lender to lender and state to state, it’s not unusual to pay 3% to 6% of your outstanding principal in refinancing fees plus any prepayment penalties or other costs for paying off any mortgages you have. Understanding these fees before you sign refinancing paperwork will make the process easier and go more smoothly and it’s not a bad idea to ask for your settlement cost papers a day in advance of your loan closing to review the documents and verify the terms. The following is a list of fees that will be disclosed on your loan paperwork.
This fee covers the cost of checking your credit report and processing your loan. Even if your loan is denied, you may still have to pay this fee.
Loan Origination Fee
Lenders charge this fee to prepare and evaluate your mortgage loan.
Equal to 1% of the amount of your mortgage loan, points are either a one-time charge you pay to reduce your loan’s interest rate or as a way for lenders to earn money on the loan, especially if the term of the mortgage is short.
As the name implies, this fee covers an appraisal of your home so that lenders can verify the property is worth at least as much as the loan amount. Sometimes this fee can be waived if you have recently had your property appraised.
In some states, lenders require termite inspections to verify the structural integrity of a property as well as a septic system test and water test to verify there is an adequate supply of water for the house.
Closing Fee/Attorney Review
Lenders charge this fee to cover the costs of the lawyer or title company that conducts the closing for the lender.
Lenders require homeowners to have homeowner’s insurance at closing to insure that the lender’s investment in your property is protected even if your house is destroyed. When refinancing most lenders only require you to show paperwork proving you have a policy in effect.
FHA, RDS, VA or PMI
Lenders require these fees for loans insured by the federal government housing programs like the Federal Housing Administration (FHA), the Rural Development Services(RDS), the Department of Veterans Affairs (VA) and for conventional loans insured by private mortgage insurance (PMI). Both private mortgage insurance and insurance from the federal government cover the risk to the lender should a homeowner not make all the loan payments.
This fee covers the search of the property’s history, ensuring there are no liens and that you are the rightful owner. It also covers the lender if there are any errors in the results of the title search.
This fee is charged to cover the cost of a survey that’s done to verify the location of your property and any improvements that have been made to the land since the last survey was done. If a survey of your property has recently been done you may not have to pay this fee.
If you still have questions at your loan closing, be sure to ask. Title companies are there to answer any questions you have about closing fees. It’s better to get answers before you sign your loan paperwork than to be surprised when your loan’s next statement arrives in the mail.