Can you negotiate the closing costs of a refinancing?
Refinancing your home loan can provide a number of benefits to your personal finances, including shorter repayment terms, access to home equity, lower interest rates, and possibly the elimination of mortgage insurance.
Even so, the high closing cost of a new mortgage loan can be daunting for many homeowners.
While most people are eager to negotiate lower closing costs, not everyone is sure how to ask their loan officer to waive fees or provide discounts.
Fortunately, it is possible to negotiate the closing costs of a refinance, and borrowers can save hundreds of dollars or more with little additional effort.
Find out about loan refinancing options. Start here (10/26/2021)
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How to negotiate the closing costs of a refinancing
When negotiating the closing costs of your refinance, it is important to understand where you can save money.
Refi strategies such as lender comparison, requesting loan estimate forms early, and utilizing available lenders can help most borrowers lower their closing costs.
The most important step you can take when preparing for a refinance is to find a comparison shop.
This means requesting mortgage quotes from multiple competing lenders, evaluating their interest rates and fees, and choosing the best deal.
Shopping does two things. First, trying multiple programs will help you figure out a good price when you see it. In addition, targeting lenders with competing businesses can put pressure on them to come up with better deals.
And that's just the beginning of what you can achieve by improving your negotiation skills.
Simply getting interest rate quotes from multiple lenders could improve your refinance rate by 0.5 percent, according to the Consumer Financial Protection Bureau (CFPB).
If you think these are little potatoes, consider the following: A 4.5% to 4.0% interest rate cut on a $ 200,000 30-year conventional loan is $ 60 per month – nearly $ 22,000 over the life of the loan .
Unfortunately, the CFPB reports, 47% of borrowers don't – potentially missing out on the best interest rate on their mortgage.
Request loan estimate forms early on
Loan estimation forms provide detailed information on mortgage fees and services. They give more details than an initial quote, but lenders often do not provide a loan estimate to borrowers until a mortgage application is submitted.
However, there is nothing stopping you from requesting a loan estimate earlier in the negotiation process.
Your loan estimates include the terms of your new home loan, including the interest rate, loan amount, and monthly mortgage payments.
They also show the providers that your lender prefers. However, since you are not required to use these preferred providers, this can save you some money.
Take a look around and compare the fees of cheaper appraisers and title companies to get a better deal on your closing costs.
Consider a mortgage with no closing costs
Some lenders offer no closing cost refinancing loans, which do not require borrowers to pay any closing costs upfront.
The lender will include the closing costs in the new loan amount – by spreading the fees over the life of the loan, or by eliminating the closing costs entirely using loans from the lender, in return for charging a higher interest rate on your new home loan.
While you are effectively negotiating the closing costs of your refinance to zero, lender loans and mortgages with no closing costs can be more expensive in the long run than just paying the costs up front.
However, if you are ready to refinance and don't have the cash to pay for the closing costs, these types of loan programs can be an ideal solution.
Historically low interest rates create healthy competition in the mortgage industry, and your current lender can provide valuable incentives to keep you a customer.
That said, mortgage lenders cannot extend an offer or discount unless you ask. So see if your current lender is willing to forego the closing costs to keep your business going.
Ask about exemptions, discounts, and rebates
Knowing what closing costs are negotiable on a refinancing loan can save you money and get the best deal.
So ask potential lenders what fees can be reduced or waived overall. You never know what you can save if you take the time to ask.
In a competitive mortgage market, some loan officers may offer borrowers incentives and discounts that can save them hundreds of dollars on the deal.
Check your refinancing loan rates. Start here (10/26/2021)
Which refinancing costs can you negotiate?
Mortgage disclosures can include a variety of fees – those charged by the lender, required by the government, paid to a third party such as a title company, and prepaid expenses such as property taxes and home insurance.
As already mentioned, these fees are shown in a loan estimate. The law requires mortgage lenders to issue one within three business days of receiving your mortgage application.
This schedule will help you determine the fees to negotiate.
Many internal lender fees and third party fees are negotiable when refinancing.
Section A of your loan estimate lists the lender's fees. Regardless of what the lender's fees are called – processing, underwriting, or origination – the total cost is what counts.
Borrowers and homebuyers can save money on closing costs by negotiating the lowest total fee to the lender for their interest rate.
You can also save money by negotiating third party fees, which can include home appraisers, credit bureaus, home inspectors, fiduciary services, and title insurers.
Some of these third-party services are negotiable and some are not.
The third party fees listed in Section B are non-negotiable, while the providers listed in Section C are borrower selectable and these fees can be negotiated during the close.
Loan application fees
Lenders charge a number of in-house fees to obtain credit, and most can be negotiated to lower your closing costs.
Ask your lender which loan application fees can be reduced or waived entirely. If you are not happy with your lender's concessions, find a company that is willing to negotiate their loan terms with you.
Some lenders charge lending fees for processing new loan applications, and since this is an internal fee, lending fees can be negotiated. Although they vary depending on the lender, these fees are often between 1% and 3% of the total loan amount.
Many borrowers require their prospective lenders to waive the entry charges and obtain discounts or rebates. When you shop for your mortgage refinance, you can potentially save thousands of dollars upon completion by choosing a lender with the lowest issuing fee or no fee at all.
A subscription fee is another internal cost that some lenders charge for evaluating a loan. This fee may be charged in lieu of a lending fee or in addition to a fee.
Your loan officer may be ready to negotiate the subscription fees. Again, it's important to buy your mortgage refinancing from multiple lenders to avoid as many of these upfront fees as possible.
While home insurance is required by lenders – and as such is non-negotiable – borrowers can save money on taking out insurance by comparing the prices of different providers to get the lowest price on an insurance policy.
Title insurance is a policy that covers both borrowers and lenders from liens or defects of title that are not revealed during the initial title search.
Similar to home equity insurance, title insurance is a non-negotiable expense, but you can buy discounts and ask the title company to waive additional fees like copying fees and postage or courier fees.
You can often reduce your title insurance premium by having your current provider reissue your policy instead of buying a new one from another company. This reduced premium is known as the “short rate” or “reissue rate”. Typical discounts are between 20% and 40%.
Credit reports, flood certificates and appraisals are usually non-negotiable closing costs and are listed in Section B of your loan estimate.
Lenders select providers and then pass the fees on to borrowers. However, by law, only the actual costs can be passed on to you – the lender cannot top them up.
Valuation fees cover the cost of having a professional appraiser estimate the market value of your property, but borrowers may not always need an appraisal when refinancing a mortgage.
Homeowners with state-backed VA, USDA, and FHA loans may be able to skip an assessment with a streamlined refinance.
Additionally, in some instances, Fannie Mae's desktop underwriting program or Freddie Mac's Automated Collateral Evaluation (ACE) program may provide an assessment waiver for homeowners with a traditional loan.
Credit Report Fees
At some point during your refinance, a lender will review your credit history to determine creditworthiness.
The credit check fees cover the cost of this process and are usually non-negotiable. However, it does not affect your loan application if you ask your lender to waive this fee – although they are under no obligation to do so.
State and local fees
Depending on the location of your home, you may have to pay mandatory government fees such as an admission fee. Your lender cannot negotiate these costs.
If your property taxes are due and not paid by your previous lender, they may be included in your closing costs.
Conclusion: You can negotiate the closing costs of a refinancing
Buying a refinancing mortgage is easier than ever thanks to the wealth of information available online.
Simply contact multiple competing mortgage lenders and request mortgage quotes. Some lenders will issue a loan estimate right there; others create a worksheet or scenario.
How high are the refinancing rates today?
Today's mortgage rates continue to provide great refinancing options for many consumers. Check out current offers from mortgage lenders and see if you can pay less.
Once you have your offers, contact your lender and see which one is the most attractive offer.
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