06/30/09: Do You Have To Pay Closing Costs Again For That Refinance Loan?
By Benny L. Kass
Q: I am shopping to refinance my existing condominium. It is worth approximately $400,000, and there is an outstanding loan balance of $160,000. My credit is stellar. In order to refinance with my current mortgage lender, they want $2,200 in closing costs. I just financed with this lender three years ago and there seems to be no special benefit for refinancing with this lender. I don't understand why they wouldn't want to keep a good customer and not charge me anything. Any insight?
A: Keep shopping. You may be able to negotiate some of the closing fees with another lender.
When you made application for that refinance loan, you should have received a “Good Faith Estimate” of all of the closing costs. Let’s look at the primary ones:
– title search: you bought your condo three years ago. Any new lender – including your current one – wants to make sure that your title is clean. In the past three years, you may have put a second trust on the property (such as a Home Equity loan). Or the Federal or State government may have slapped a lien on your property for non-payment of taxes. Accordingly, they will insist on doing a “run-down” of your title.
– survey: if you are refinancing a single family home, the lender wants to make sure that you have not made any additions to the property that could cause a title problem – such as adding a non-conforming structure to your current house. So the lender will want you to sign an affidavit to the effect that no such external construction was made to your house. But since you are refinancing your condominium unit, no such survey (or affidavit) will be required.
– appraisal: lenders want assurance that there will be enough equity in your home if they have to foreclose on the property. And lenders are painfully aware that property values have gone down significantly in the last year. So all new lenders will insist on having an appraisal of your property. This will be more expensive now, since the appraisal rules have changed, and lenders cannot use their favorite appraisers anymore, but must make sure that the appraiser is completely independent.
However, my experience is that in many cases, your existing lender may waive the appraisal requirement, since they know your property. Especially in your case, where there is considerable equity, you may be able to convince your current lender to waive the appraisal process.
– miscellaneous lender charges: lenders will often hit you with such charges as “document preparation”, or “underwriting fee”. These are negotiable, and you should ask each lender you contact to waive – or at least reduce – their charges.
– title insurance: you do not need to purchase an “owners” title insurance policy, but the lender will require that you obtain “lenders title insurance”. Why?
I asked Jack Guttentag, the Mortgage Professor, this question, and here's his response: "You don't need a new owner's policy, but the lender will require you to purchase a new lender policy. Even if you refinance with the same lender, the existing lender's policy terminates when you pay off the mortgage. Furthermore, the lender is concerned about title issues that may have arisen since you purchased the property. A new title search will uncover any such issues, and you will have to pay it off as a condition for the refinance."
But you may be entitled to a discount based on how long ago you purchased your original policy. This is called a “reissue rate” and you should insist on it when you go to settlement. This is a charge imposed by the title attorney/company, and not the lender.
– governmental charges: these are charges that are non-negotiable. The recorder of deeds where your property is located will charge certain fees, such as recording the release of your existing mortgage and recording the new deed of trust. Often, the charge is based on the number of pages in the document. Your lender should be able to provide you with a ballpark of these charges.
Everything in real estate is negotiable. Shop around carefully, ask as many questions as possible, and you should be able to save some money on your refinance. But since interest rates appear to be on the rise, don’t wait too long.