Closing costs are one of the factors that determine the money you will get from a cash-out refinance. They are usually 3% to 5% of the new loan amount, and you have the option to pay them right away in cash or roll them into your new loan. Cash-out refinance closing costs differ from one lender to another. As you contemplate taking a cash-out refinance on your home’s equity, it’s advisable to learn about what’s included in closing costs to have a rough estimate of the money you will cash out from this refinance.
What’s Included in a Cash-out Refinance Closing Costs?
1. Origination Fees
The biggest percentage of your closing costs comprises of the origination fees. This is a fee that a lender charges upfront for a new loan application. It is compensation for all the paperwork and assistance a lender offers in processing your cash-out refinance. In most cases, origination fees are about 1% or 2% of the loan principal. Depending on your lender, the origination fees may include payment for credit reports.
Origination fees are also known as application, or administration fees. Some lenders allow room for negotiations on appraisal fees. This is something you should confirm during the inquiry.
2. Appraisal and Home Inspection Fees
Your home’s value is an important figure in calculating a cash-out refinance. For the lender to know a home’s current value, they must consult the services of an appraiser. These fees are added to your closing costs. Appraisal fees range from $200 to $500, depending on your state.
There are instances when the appraisal fee can be waived. This is if the property was bought recently and the owner has records of the appraisal file. But since the property market is unpredictable, the value of your home may have increased, which can boost your equity. Therefore, it’s a good idea to get an appraisal.
At times, lenders may also request to perform a home inspection. This will attract more fees since these inspections are handled by an engineer or property inspector.
3. Mortgage and Title Insurance Fees
Lenders are very keen on mortgage insurance since it guarantees compensation if a home they have refinanced is damaged. Even though your home will have insurance from your current mortgage, the lender must confirm.
Cash-out refinances backed by the Department of Veterans Affairs, and Federal Housing Administration must include mortgage insurance fees in closing costs. On the other hand, conventional cash-out refinance loans where the borrowers haven’t put up more than 20% down payment, private mortgage insurance is mandatory. It will cover the lender in case the borrower defaults on payments.
In your closing costs disclosure, you may come across title insurance fees. This insurance protects the lender from any claims made to your home. Title insurance fees are one-time payments ranging from 0.5% to 1% of the home’s value. When paying for title insurance, you will be required to pay for a title search that looks into claims made to your property.
4. Attorney Fees
In certain states, an attorney must go through the loan terms and paperwork. These fees are to be paid by the applicant. Even if this isn’t a requirement in your state, it’s good to have a professional real estate lawyer review your cash-out refinance. They can provide you with valuable insight.
Closing costs will always vary amongst lenders. It includes some if not all of the above fees. You will get a loan estimate for every application for a cash-out refinance. This is a figure that needs to be thoroughly analyzed before closing. These costs can be paid in cash as you close the mortgage. You will save more by doing this. Alternatively, you can finance them into your new mortgage at an interest.
