Refinancing Your Mortgage
It is important to
understand what costs are involved when buying or refinancing a home.
This transaction is usually the largest transaction they will ever have
in their life The
closing costs on a refinance loan gtypically include these expenses:
credit report fees, appraisal fee, escrow and title fees, lender fees, points,
homeowners insurance and property taxes. The single most largest fee is
normally the point(s) you will pay for a lower interest rate, otherwise
it is escrow and title fees. If there is enough equity in the subject
property on refinance transactions, homeowners are able to add the closing costs into the new
mortgage balance. Another option is for the borrower to bring to closing
appointment a certified
check to cover the closing costs.
When borrowers want to avoid closing costs altogether. A good choice is
the no closing cost mortgage ( normally done
with loan amounts in over $200,000). With
a no closing cost mortgage, the existing loan balance stays the same
while the borrower takes a higher interest rate whereby the lender or
broker will pay all
non-recurring closing costs on the loan using a lender rebate. So, all
non-recurring closing costs are covered except state or county doc
stamps, property taxes, hazard insurance and mortgage interest.
Credit Report Fees
The
lenders order a report ranging from $15 to $30 for married couples from
the three major credit bureaus Experian, Equifax, and Transunion. If your
credit report has information that is not correct, the costs to rectify
it could be anywhere from $25 up to $1,000 depending on the amount of
errors, how many credit reporting agencies are reporting it, and the
difficulty in fixing it.
Appraisal Fees
The
appraisal fee is a charge to inspect your property and the fee
will depend on the property type involved. Appraisals for
single-family homes and condominiums usually cost less than appraisals
for multi-unit properties. Other factors include property size, rural or urban, and whether the
property is a primary residence or used as an investment property. The typical fee for a
standard owner occupied single family tract home, condominium or
townhouse is $250-$500. Appraisals for income properties typically cost
more than appraisals for non-income properties. Lender's usually require
income property appraisals to include a rent survey and the property's
income statement. For homeowners, some lenders may accept an abbreviated
appraisal called a "Drive By Appraisal" which reduces the fee. This has
become acceptable for home equity loans.
Title & Escrow Fees
Title insurance
is insurance against loss from defects in title to real property
and from the invalidity or unenforceability of mortgage liens
. Possible defects in title include: liens for unpaid taxes,
contractors liens, forgery, judgments, encumbrances, maps. The title
company searches public records, divorce decrees, wills, deeds, and
mortgages.
Two types of title insurance policies
are commonly issued for real property: a lender's policy and an owner's policy. When
you refinance your home or take out a new mortgage, the lender needs
protection for their investment by requiring the purchase of a lender's
title insurance policy to protect against losses resulting from claims
made by others against your new home. Since a lender's policy does not
protect your financial interests, an owner's title insurance policy is
worth every penny. If someone has a claim against the title to your new
home and you are not insured, the result could be financial disaster.
it is not uncommon for title insurers to offer discounts up to 30% when both the lender and owner policies
are purchased at the same time.
The
escrow fee is a service fee charged by the escrow company and sometimes
title company for acting as an independent third party in facilitating your transaction and insuring
that all parties to the transaction perform as agreed according to the
purchase contract or related documents.
Escrow is a service fee which provides the buyer, seller (and lender
during refinances) with protection in the handling of funds and
documents in the property transaction. Escrow enables the parties
involved to transact business with each other through a neutral
third party.
Lender Fees
The
fees that a lender charges to process and fund your home loan are
commonly known as: processing, underwriting, administrative, document preparation and
funding fees, wire, tax service fees and flood certification fees. These are very common fees and are charged
industry wide. The difference is what each lender may charge. It is
common for fees to be between roughly $650-$1,550 in total fees
charged.
Points
Points
generally fall into two categories, discount points and origination fees.
Discount points are paid by the borrower to
obtain a lower interest rate loan. A point, also called origination
fee, is a commission charged by the lender or mortgage broker for their service in structuring the
transaction. A point is a loan origination fee equivalent to 1% of the
loan amount (e.g. one point on a $400,000 mortgage is $4,000). Together
with the interest rate they constitute the yield on your loan for the
lender. Some lenders charge a higher interest rate to compensate for
charging no points. It is important to comparison shop lenders to make
sure your loan is at a competitive yield. A lender does not have
to charge "1" full percentage point, To be competitive, they may charge
only. ".75" or 1/2 point.
Homeowner Insurance Fees
Your homeowner's insurance policy will need to be current at the
time the new mortgage closes. Homeowners insurance , also called hazard
insurance, protects the homeowner against physical perils such as
fires, falling trees, windstorms and other disasters. In addition, most
policies also provide general liability protection in case of accidents
on your property. For example, if a neighbor came to visit, tripped on
your broken front step and then went home and sued you, your homeowners
policy would cover you.
The cost of homeowners insurance often depends on
what it would cost to replace the house and which additional
riders—additional items to be insured—are attached to the policy. Thus,
it is appropriately named "replacement cost coverage". The majority of 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 refinance. keep in mind each
lender and insurance company have different rules and may require you to pay
your premium upfront for one year.
Typically, claims due to earthquakes, floods, "Acts
of God", or war (whose definition typically includes a nuclear explosion
from any source) are excluded. Special insurance can be purchased for
these possibilities, including flood insurance and earthquake insurance.
You will know in advance if you are in a geological hazard zone as the
lender will review the reports by the appraiser and FEMA's geological
hazard map
It is good practice to confirm with your insurance carrier or agent of your choice for a homeowner's or
hazard insurance quote as well as a quote for special insurance such as earthquake
or flood coverage if necessary.
Property Taxes
The
lender will request that all real property taxes be paid current at loan closing by
the borrower ( buyer and seller if a purchase) even if they are
delinquent or outstanding. Most counties require the payment of property
taxes on a semi-annual basis. Since all but a tiny fraction of
real estate transactions close on a date other than the specified annual
date, most transactions include an adjustment by escrow or title company
to assure that both the seller and the buyer end up paying their share
of the annual property tax, proportionate to the percentage of the year
that each has ownership of the property. If not done properly the
outstanding property taxes will become a tax lien on
the property.
During a refinance transaction it is very important that the borrower
not attempt to pay his or her real property taxes without escrow because
it may not show as paid right away by the county unless you have a paid receipt.
Without a paid receipt, you may have to pay your property taxes two
times, in escrow, because the title company was unable to verify
that the county received your payment. In this case, you will be refunded
approximately two to six weeks after closing once your property tax
payments are posted. Therefore, It is best
to always have communication flowing so everyone is on the same page. .
Glossary
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