How much are refinance closing costs?
This cost is often a percentage of the loan amount, with the average closing cost ranging between 2% and 6% of the total loan amount. So if you are refinancing a home for $500,000, you can expect to pay $10,000 to $30,000 in costs.
According to Freddie Mac, the average closing costs are $5,000, but the total amount you pay depends on various factors such as the size of your loan, your state, and the county you live in.
Bear in mind that some of the best refinancing lenders don't charge origination fees, which could lower your costs. On the other hand, closing costs could be higher if you decide to pay for extra discount points to buy down your interest rate. Or if you choose a mortgage lender that charges a high application fee.
What is included in refinancing closing costs?
When you refinance, you'll have to pay for a number of different expenses. Here are some of the refinancing closing costs you can expect.
Application and origination fees
Some lenders charge application fees of between $75 and $500. Many also charge a separate origination fee for the cost of underwriting the loan. This is typically between 0.5% and 1.5% of the total loan value.
On a $500,000 refinance loan, your origination fee could run as high as $7,500. These fees will be specified in your closing disclosure.
Credit report costs
Lenders will check your credit report to understand your borrowing history. The reporting agencies charge a fee of $10 to $100, which you will have to pay.
Appraisal, survey, and inspection
Your lender may require a careful evaluation of your property. It wants to know it's valued highly enough to offer sufficient collateral on the loan. This can include:
- An appraisal, which costs between $250 and $700. A professional will compare your home to others on the market to determine its value.
- A survey, which can cost between $150 to $500. It's designed to determine the boundary lines of your property and see whether there are any easements. An easement is where someone else has certain rights to use your property.
- An inspection, which costs between $175 and $500. This will ensure there are no major structural problems with your property,
Flood certification
Flood certification is $15 to $25. It will determine whether the property is located in a flood zone. If so, you'll likely be required to pay ongoing flood insurance.
Title search and title insurance
A title search identifies any outstanding claims on your property. And title insurance protects against loss in case a title search misses a defect. You can expect to pay between $400 and $1,000 for these services.
Closing costs
Closing costs of $500 to $1,000 may be charged by the attorneys or title companies that officially close on your refinance loan.
Early payoff
Some mortgage loans have prepayment penalties, meaning there's a fee to pay off your mortgage early. Prepayment penalties on conforming loans were prohibited on Jan. 10, 2014. However, if your loan is nonconforming or was obtained prior to that time, you may owe a prepayment penalty. It could be as high as 2% of your loan balance. The fee declines over time, so the longer you've had your original loan, the lower the fee.
Discount points
Discount points are optional. You can pay extra at closing to reduce your interest rate. You can choose to reduce your interest rate by 0.25% for each point you buy. Points generally cost 1% of your loan amount. Refinancing rates are very competitive right now and discount points could reduce your interest costs even further.
Mortgage insurance premiums
You'll usually have to pay mortgage insurance if the loan amount is more than 80% of the value of your property. Insurance premiums are normally added to your monthly mortgage loan payment. But for some loans, such as an FHA loan, you may also have to pay an upfront mortgage insurance premium of between 0.5% and 1.75% of your loan.
How to reduce closing costs
The good news is that there are ways to reduce the closing costs of refinancing. One of the easiest ways is to compare offers from different lenders.
Shop around and compare the fees and interest rates from a few different lenders to ensure you are getting the best deal. Additionally, you can negotiate with your lender to see if it is willing to reduce some of the closing costs.
Some lenders may offer promotions that can help reduce the closing costs, making refinancing more affordable.
Still have questions?
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