Rates & Fees > Explaining Your Estimated Closing Costs
Explaining Your Estimated Closing Costs
The costs of closing a refinance mortgage
generally include the following: Title and escrow fees, lender fees, points (an optional expense), appraisal fees, credit fees, insurance and taxes. When refinancing, the major expense is the title and escrow fees (though they are not as costly as when purchasing property). Refinancers have the option of financing their closing costs by adding them onto their current mortgage balance (assuming there is sufficient equity in the subject property to do so) or they may cover the costs with cash at closing. Another increasing popular option is the no cost mortgage
(available typically with mortgage amounts in excess of $180,000).
With a no cost mortgage a borrower can avoid adding fees onto their existing mortgage balance, or paying for their closing costs with cash, by taking a higher interest rate whereby the mortgage originator can cover all non-recurring closing costs
on the mortgage, (all costs except taxes, insurance and interest) utilizing the rebate they receive from the lender funding the mortgage.
Include both the owner's and the lender's policy of title insurance as well as the escrow fee. Title insurance protects both the buyer and lender by insuring a clear chain of title, that the persons with the legal right to convey title to your property are the ones who have actually done so. Also, some polices protect against the occurrence of fraud and forgery.
Many refinanciers voice resistance to paying for another policy of title insurance when they have already incurred the expense at the time they purchased the property. Keep in mind that the lender is insured as well as yourself, the owner. Refinancing creates the need for a new policy for the new mortgage. Most title companies offer substantial reductions in the price of both the title policy and escrow fees of refinanciers.
The escrow fee is a service fee charged by the title company for acting as an independent third party in facilitating your transaction and insuring that all parties to the transaction perform as agreed.
Other title fees include the fee to notarize your mortgage documents (the notary fee) the fee required to record your deed of trust with the county recorder's office (the recording fee), as well as miscellaneous drawing, courier and express mail fees. You may call a title company conveniently located near your property, provide them with the mortgage amount you'll be requesting and they can supply you with an accurate fee quote.
The flat fees that a lender charges to process and fund your mortgage fall under a variety of names and can generally be lumped into one category the industry refers to as "garbage fees". They include: underwriting, processing, administrative, document preparation and funding fees. Additional lender fees include wire, tax service fees and flood certification fees. These fees are charged by virtually all lenders and range from approximately $650-$850 in total fees charged.
Points generally fall into two categories, discount fees and origination fees. Discount fees are prepaid interest that a borrower elects to pay up front to buy down the interest rate down on the mortgage. An origination fee is also used to buy the interest rate down but is used to compensate the mortgage originator in the transaction, rather than accepting a higher interest rate where the lender funding your mortgage compensates the mortgage originator.A point is equivalent to 1% of the mortgage amount (i.e. one point on a $300,000 mortgage is $3,000).
The fee an appraiser will charge to inspect your property will depend on the type of property involved (i.e. single family vs. duplex to fourplex) and whether the property will be owner occupied or used as an investment property. The typical fee for a standard owner occupied single family tract home, condominium or townhouse is $300-$400. An investment property typically requires a rental survey and operating income statement to be completed with the appraisal and can add an additional $200-$300 to the cost of the appraisal. Also, if you are purchasing new construction, the appraiser may have to return to the property an additional time to complete a final inspection (referred to as a 442), to insure that construction has been completed as proposed. This fee might amount to an additional $75-$150.
The fees to check your credit (using three credit bureaus as lenders require) range from $25-$65 per person or per married couple. If your credit report has many inaccuracies on it, the costs to correct the errors could generate higher fees from the credit reporting company.
Your policy of homeowner's or hazard insurance
will need to be current at the time the new mortgage closes. The standard coverage requirement a lender requests is replacement cost coverage
. Most lenders require that your current policy be effective for a period not less than four months after the first payment date on the new mortgage (though some lenders and insurance companies my require you to pay up to a year's premium). For example, if your current policy expires within two months of the first payment date on the new mortgage, the lender may ask you to pay two more months premiums. Also check with your insurance carrier to verify that they will accept an incremental vs. annual payment, otherwise you may have to pay up for another year.
If your property is located in a geological hazard zone (i.e. quake or flood zone) the lender will ask that you have policies in place to cover these hazards as well. Geological hazard zones are established by FEMA and the appraiser can determine whether your property is located in such a zone by referring to the most current FEMA geological hazard map. FEMA reclassifies hazard zones periodically and although your property was not located in a zone at the time of purchase, your property may now be included in such a zone.
Check with the insurance carrier or agent of your choice for a homeowner's or hazard insurance quote as well as a quote for quake coverage if you require it. Contact The National Flood Insurance Program at 800-638-6620 for a flood insurance quote if this coverage is needed. Mortgage insurance
may be required on your mortgage if only one lender is financing in excess of 80% of the appraised value of the home. You may also be able to eliminate an existing policy of mortgage insurance on your home if you have experienced an increase in property value and you now have sufficient equity in your property to do so.
The lender will request that all delinquent or outstanding property taxes be paid at mortgage closing. Most counties require the payment of property taxes on a semi-annual basis. But if you happen to be refinancing during the window of time where your property taxes are due but not yet delinquent, you may be required to pay the installment in escrow, prior to closing, because your property taxes are now a valid lien on the property.
It is important to note that if you do fall within the aforementioned window, you should not attempt to pay your property taxes outside of escrow because it could take the county weeks to post your property tax payment as received. Then you may be left in the position of having to pay your taxes a second time, in escrow, because the title company was unable to verify that the county received your first payment (of course one of these payments would be refunded to you after closing once your property tax payments were both posted - but what a hassle). It is best to always consult with your loan coordinator or escrow officer before making a property tax payment during the escrow process.