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Question:


What’s the most I should pay for closing costs to refinance my home? Are there any other fees I need to be aware of?
-ShortyQ


Answer:


It’s hard not to be cynical when thinking about the process of closing a home loan. Lawyers, bankers and real estate agents are paid significant sums, each to make sure that the others are performing their tasks competently and on the up and up. In an outright sale, rather than a refinancing, the list of fees that must be paid either by the buyer or seller is exhaustive, covering loan origination, appraisal, title search, home inspection, legal advice, among others.

Then there are points, which is a percentage of the amount of the loan paid upfront as a fee. Sometimes the buyer also must pay the seller the portion of the annual property tax bill that covers the period from when the property is sold to when the next tax year begins. And don’t forget homeowner’s insurance, title insurance and mortgage insurance. The last one is often required by lenders of buyers whose down payments are less than 20 percent of a property’s value and covers the lender if the homeowner defaults. Items like surveys and title searches incur what are known as nonrecurring closing costs; others such as homeowner’s insurance and property taxes carry the oxymoronic label “recurring closing costs.”

The good news if you’re refinancing is that you’re covering the recurring costs already. The bad news is that while you might think that some of the one-off costs are unnecessary, your prospective lender is likely to disagree. Chances are you’ll have to undergo another title search, for instance. There are also likely to be costs tacked on by the holder of the mortgage you’re replacing. There is a “demand fee,” which the lender charges for telling you how much is left of the mortgage for you to pay off, and a “conveyance fee,” which covers the cost of legally switching ownership of the property back to you.

Closing costs vary greatly depending on which ones are included and where you live, but something in the neighborhood of 2 percent on a $200,000 loan seems reasonable. It should be a smaller percentage on larger loans because some closing costs are the same no matter how big the loan is. Anything significantly more than that may be excessive or it could be due to your location or the specific aspects of your home and the loan you’re seeking. Reasonable or not, closing costs can be brought down by using the services of a mortgage broker who can shop around for a good deal on your behalf. You should also do what you can to spruce up your credit report – pay down debt, take care of delinquencies – in order to refi at the lowest interest rate possible.

-Conrad de Aenlle



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