Along with the basic costs of a refinance project, there are often some additional costs that many people do not take into account. These costs can sneak up on an individual and create a bad financial situation when a little bit of planning would have saved a lot of trouble.
Here are some of the most prevalent additional costs that you may see if you are trying to refinance.
The Mortgage Application Fee
Before you even get started with the process of refinancing, you have to pay a fee to turn in the application. Depending on your state and financial institution, this fee may be between $250 and $500. You should look out for other fees like this throughout the process, because this will not be the only fee that you take on as you try to refinance.
The Appraisal Report
If you are looking for a lender to give you money based on the value of your home, that lender will likely require an appraisal given by a company that the lender trusts. Along with this appraisal comes a fee. Usually, the appraisal report fee will run between $300 and $600. Depending on what the report finds, you may have to come out of pocket with more cash to make up for the low loan to value ratio. Alternatively, you may have to put down money for mortgage insurance.
The Loan Origination Fee
If you are asking for a more expensive loan, then the loan origination fee will be more expensive as well. This is a fee that is not flat – you will pay about 1% of the total value of the loan that you want. For instance, if your principal balance to be refinanced is $500,000, then you will have an origination fee around $5000. You may have a little bit of room to negotiate this fee depending on your good faith estimate, but in most cases, you should keep around 1% handy.
The Document Preparation Fee
The people who want to see your documents will charge a fee for preparing them. Lenders will typically make this fee anywhere between $200 and $500. There is no way to get around this fee, so you should just grin and bear it.
Depending on which area of the country you are in, you may have to get flood certification for your lender to consider refinancing your home. There is a discussion in Congress about reforming the National Flood Insurance Program bill. If the Reformation goes through, the areas of the country that are subject to a flood certification fee may change. Make sure that you understand exactly where this fee applies so that no one can apply it to you unjustly.
Title Insurance and Title Search
Your lender needs to make sure that you actually own the title to the home the you are trying to refinance. It is not enough for you to say this – the lender needs to look for the documentation in the public record. This requires an official title search. The cost of this title search is usually between $200 and $400. This is especially prevalent if you still have a lien on the home that comes from another bank.
Title insurance helps protect the lender against any problems that may occur if the title needs to transfer. Rates on this type of insurance vary a great deal, although you should look to pay between $400 and $800 depending on the total value of your property.
The Recording Fee
You will owe fees to the county or the city that your property is stationed in as well as to the lender. One of the most prevalent of these fees is called a recording fee. The county charges this for handling all of the official paperwork. Depending on the county that you are in, you should look to pay between $25-$250.
This is perhaps the biggest cost that you will incur when you try to refinance your home. Amortization is a cost that applies from the second that you first begin your application. It refers to the method in which your payments are applied towards the reduction of your principal. Basically, all of the money that you pay back does not go towards your principal – some of it goes towards the interest. All of this depends on your amortization, and it can make a huge difference in the total amount that you pay.
This is far from a full list of the fees that you may incur if you are trying to refinance your home. Make sure that you understand the processes in your county and with the lender that you choose before you move forward with this.