During A Refinance, Closing Costs Can Be Cut
When comparing refinancing information from one lender to another, consumers usually evaluate the interest rate and loan type. But home loan borrowers should ask each lender for an estimate of the fees they need to pay when refinancing a mortgage. Many lenders offer an estimate of closing costs before they provide the official document known as a Good Faith Estimate.
Estimating your closing costs: what to expect
As a rule of thumb, total closing costs typically range from 3% to 5% of the price of the home. Borrowers typically recoup this money quickly through their savings on the new loan. Lenders are required to provide a Good Faith Estimate to mortgage applicants within three days after they apply for a loan. The Good Faith Estimate lists all closing costs and provides the borrower with information about which fees can change before the actual settlement and which cannot.
Make sure you ask to see a copy of your HUD-1 settlement statement at least one day before your closing in order to compare your Good Faith Estimate with your final fees so that you have time to question any major changes.
How to lower your closing costs
Ask your lender (or more than one lender if you are comparing offers) if any of the fees are negotiable. Things like a title search, appraisal, attorney’s fees, a credit report and title insurance are usually standard, but you can save money on your title insurance by renewing your current policy when you refinance rather than starting with a new company.
Settlement costs, underwriting fees and application fees may be negotiable. About one-half of all lenders charge an application fee.
Lenders typically charge discount points in order to lower the interest rate on your mortgage. Generally, borrowers opt to pay additional points (equal to 1% of the loan amount) in order to reduce the rate on their mortgage loans. If you are interested in reducing your costs, you may want to consider a home loan with fewer points or zero points and a slightly higher interest rate.
Many homeowners choose to wrap their closing costs into their new home loan when refinancing, but reducing costs should still be a priority even if they are not paid in cash.
