Wendy Wilson

Nobody likes to pay closing costs, but it’s a reality of a mortgage refinance. You might want to refinance your home for various reasons, such as taking cash equity, easing financial problems, and lowering private mortgage insurance costs. If you have financial issues, there are mortgage lenders who lend to discharged bankrupts.

However, refinancing costs could be up to 5% of your principal in mortgage refinance fees. It’s not an enormous charge, but it’ll add up over time. This article will guide you on closing costs when switching loan products, lowering your mortgage rate, or tapping into your equity.

What are the typical mortgage refinance costs?

You probably remember the closing costs when you first got your mortgage. If so, the closing costs on a typical mortgage refinance are very similar. There are various expenses and fees that you will have to pay when you go through a mortgage refinance.

It will help if you compare mortgage refinance rates. You could find a better deal if you do research and compare the market. There are several common closing costs.

» MORE: Find the best mortgage refinance lenders

1. Loan origination fee

You’ll usually have to pay an origination fee to your lender that prepares your loan. The average origination fee is around 0.5% to 1% of the loan amount. For the most part, the fee covers the customer service provided by the lender.

The lender will often stay in touch with you during and after the mortgage refinance process. In addition, the lender will secure your loan, arrange documents, offer verification of the information, and cross-reference any documents if your refinancing application applies to government-backed loans.

Nonetheless, it’s essential to know that you can negotiate all loan origination fees. So don’t be afraid to negotiate these costs with your lender. Can you ask to waive the origination fee mortgage? Yes, it’s worth a shot.

2. The appraisal fee

You will get an appraisal before you buy your home for the following reasons:

  • To ensure there are zero hidden problems
  • To make sure you’re getting the best deal
  • To prove the home’s value to the lender

However, you’ll also have to get an appraisal when you’re looking to refinance the home. That’s because lenders will need to know that the property hasn’t significantly changed since you bought it. Appraisers will typically charge around $300 to $600 for an appraisal.

Furthermore, the mortgage lender might need you to complete a pest and termite inspection. They might also need an engineer or property inspector to view the home’s condition. Again, these fees could set you back another $250 to $500.

3. Mortgage insurance and title fees

When you purchase a home, you’ll receive title insurance. The title insurance document shows the seller has transferred the home to you. In turn, the document will prevent you from having any legal issues regarding ownership of the house.

You’ll need to buy new title insurance when you complete a mortgage refinance. That’s because the refinance is a new loan. However, many title insurance companies will offer huge discounts for returning customers that already bought a policy when they bought a home. Can you get title insurance credit on refinance? It’s possible if you purchased the policy less than three years ago.

When government agencies back mortgage loans, such as the FHA or the VA loan, they will require you to pay mortgage insurance. Typically, if you’ve put down a deposit that’s 20% of the loan’s value, you’ll need to pay private mortgage insurance.

As a result, that will protect the lender in case of any financial default or other issues where you can’t repay the mortgage. The lender will often offer their insurance, and fees vary between 0.55% to 2.25%.

4. VA funding fee

The Veterans Association has two refinance products — the VA cash out refinance and the IRRRL. However, the funding for these two VA refinance types differs based on their different objectives. The IRRRL looks to switch VA homeowners into a fixed-rate or adjustable-rate VA loan. In contrast, the cash out refinance option allows veterans to refinance and take equity out of the home as cash.

If you’re refinancing a VA loan, you will have to pay a percentage of the loan to the Department of Veteran Affairs. Nonetheless, the amount that you pay depends on the type of refinancing you choose.

For example, if it’s your first VA loan, the typical funding fee is around 2.3%. That can rise to 3.6% after your first use. The standard funding fee for the VA IRRRL is 0.5% regardless of prior usage or history.

Various people are exempt from the VA funding fee, and these include:

  • Anyone receiving VA disability
  • Surviving spouses that receive Dependency Indemnity Compensation
  • Purpleheart recipients that are on active duty

» MORE: See our picks for the best VA mortgage lenders

5. Early repayment fees

It’s not uncommon for your lender to charge early repayment fees. However, if that’s the case, you might want to reconsider a mortgage refinance. Although prepayment penalties aren’t every day, they’re often applicable within the first three to five years of your mortgage. In addition, FHA loans and VA loans rarely include prepayment fees because they’re government-backed loans.

6. Discount points

Discount points are interest payments on your mortgage’s total amount. Lenders sometimes charge points when you complete a mortgage refinance to make more profit. So, when you look at your loan estimate and see discounts points that you never bought, you will need to negotiate those fees asap. You can use a mortgage discount points calculator to help you.

7. Credit report fee

Lenders will need to ensure that your credit score hasn’t dropped since you got the loan. As a result, lenders will need to conduct a new credit check, and they’ll likely charge a closing fee for it. Credit reports cost between $25 to $50.

8. Higher loan balance

Whenever you decide to roll in the closing costs, your loan’s total balance will increase. Although it might not be a considerable sum on the surface, it will add extra to your monthly repayments. So make sure you’re confident you can repay a higher loan balance if you choose to roll in your closing costs.

Final thoughts

Closing costs can be highly frustrating for any borrower. Therefore, you should ensure you can afford to cover all the closing costs. If not, you should consider whether mortgage refinancing is the best option for you.

Make sure you negotiate with the lender, conduct thorough research, and understand the mortgage refinance costs. If you do all that, your mortgage refinance will be a seamless process.

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