Refinancing Your Home – Typical Closing Costs

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When refinancing an existing mortgage, homeowners must be prepared to pay new closing costs, just as they did when they initially purchased their property. There is little difference between the costs associated with a refinance loan and those of an initial purchase loan, so experienced borrowers should not be surprised.Following are the major costs one can expect upon settlement of a refinance loan.Title and Escrow FeesThe company responsible for providing title insurance and escrow services will require payment in full for their services upon closing of the loan. Title insurance protects both the borrower and the lender from any potential problems arising with the transition of property title from one party to another. Escrow fees are paid to the title company for their services as an independent mediator to ensure that all parties uphold their responsibilities, as well as for acting as the agent for payment to the various companies and individuals that will be paid at closing.Lender Fees and PointsThere are several flat fees charged by the lender for services during the application and underwriting stages of loan approval. Such fees include payment for document analysis, credit reporting, certifications, etc. Often these costs are referred to as “junk” fees, but it is extremely difficult to avoid paying them. Points on a loan are often used to reduce the overall interest rate charged to the borrower, and each point equates to 1% of the total loan amount. Borrowers who pay for points at closing are often doing so in exchange for a slight decrease in their interest rate over the life of the loan.Appraisal FeesSince a new property appraisal will be necessary in order to complete the underwriting process, the fee for such a service is usually paid at settlement. Although every appraiser has a different price for their work, the average home appraisal is within the range of $300-$400.TaxesMost lenders will insist that any property taxes due at the time of closing, or perhaps shortly thereafter, be paid in full prior to settlement. Since property taxes may become a legitimate lien against a home, lenders are unwilling to proceed without confirmation of such payments having been posted and processed.