Mortgage Refinancing Closing Costs
Are you thinking about refinancing your home? Here’s what to expect regarding refinancing closing costs.
Refinancing is cheaper than taking out the original purchase loan. Mortgage refinancing closing costs are lower than buyer closing costs. Refinancing is also quicker and easier. Compared to your original mortgage, you don’t need to submit as many documents to get approved for a refinance.
For example, an FHA Streamline Refinance does NOT require employment verification, income verification, or even credit score verification. You can even have an underwater mortgage! The FHA will allow you to use the original purchase price as your home’s current value, regardless of what it’s worth today. So there is NO appraisal requirement, either.
If interest rates are now lower than what you’re currently paying, talk to your loan officer about how much you can save each month with a refinance. You may be able to finance the one-time mortgage refinancing closing costs, and pay less out of pocket.
If you are interested in refinancing with a Reverse Mortgage, read my article about Reverse Mortgage Costs.
Mortgage Refinancing Closing Costs – What to Expect
Whether you have a conventional, FHA, or VA mortgage, mortgage refinancing closing costs are similar. The exception is the cost for mortgage insurance, which is covered in the next section. Here’s a breakdown of refi closing costs:
- Lender Appraisal – usually between $500-$900. There is no appraisal required for an FHA Streamline Refinance or a VA Streamline Finance (IRRRL).
- Lender Processing/Underwriting Fee – check with your lender. Usually between $1000 – $2500.
- Pro-Rated Interest – for the remainder of the month the loan closes.
- Lender Impound Account Deposit – for future property tax and homeowner insurance bills.
- Escrow Fee – these vary by escrow company and they are based on the loan amount. Usually between $500 – $1500.
- Title Insurance Premium – this is for a lender’s title policy. Rates are based on loan amount. Usually between $500- $1500.
- Notary Fee – between $150 and $250.
- Government Recording Charges – approximately $100.
If you are using a conventional, VA, or FHA refinance program, you may be able to finance non-recurring closing costs into the loan.
Mortgage Refinancing Closing Costs – Mortgage Insurance
Here’s how mortgage insurance works for conventional, FHA, and VA refinances.
Conventional Home Loan Refinance – Mortgage Insurance
If you take out a conventional loan with less than 20% equity, you may be charged monthly private mortgage insurance (PMI). Here are some ways to avoid paying monthly PMI:
Borrow up to 80% of the home’s value.
Conventional loan programs usually charge mortgage insurance if the loan has a loan-to-value (LTV) ratio higher than 80%. For example, if you’re refinancing your home, and the appraiser values it at $500,000, you can borrow up to $400,000 to automatically avoid mortgage insurance.
80/10/10 Refinance.
There is a way to avoid mortgage insurance, with an LTV of 90%. There is a program called an 80/10/10 Refinance. This requires two loans, a first mortgage for 80%, and a second for 10%. You need at least 10% in equity, a FICO score above 730, and a Debt-to-Income Ratio maximum of 38%.
Up Front Mortgage Insurance.
If you have good credit, your lender may allow you to pay a one-time, up-front mortgage insurance premium. The amount of this premium depends upon your credit score and LTV ratio.
Lender-Paid PMI.
Your lender may pay off your mortgage insurance for you, in exchange for a higher interest rate.
FHA Home Loan Refinance- Mortgage Insurance Premium
When you take out an FHA-insured mortgage, you are charged an Up Front Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount. You are also charged monthly mortgage insurance, which is .55% of the loan amount. If you have an existing FHA mortgage, and then refinance to an FHA Streamline Refinance, you will be charged a new UFMIP for the FHA Streamline Refinance. No appraisal is required.
When you refinance to an FHA Streamline Refinance, you may be eligible for a refund of the UFMIP from the original mortgage. It depends on how long you have had the loan. One month after closing, the refund is 80%. The refund is reduced by two percentage points for each month after the initial FHA loan closing date. So two months after closing, the refund is 78%. Twelve months after closing, the refund is 58%. The final month of refund eligibility is 36 months after closing, when the refund is 10%.
VA Home Loan Refinance – VA Funding Fee
VA loan programs do not charge monthly mortgage insurance. Instead, borrowers pay a one-time VA Funding Fee. The VA Funding Fee for VA loan refinances depends on the type of refinance. There are three types of VA refinances:
- VA Streamline Refinance, a.k.a. Interest Rate Reduction Refinance Loan (IRRRL) – If you have an existing VA loan with a high interest rate, you can refinance into a new VA loan at the current interest rate. No appraisal required. The VA funding fee for an IRRRL is only .5%. You can add one-time mortgage refinancing closing costs to the loan balance, such as lender, title, and escrow fees. The documentation requirements are very simple. All you need is one month’s bank statements. You don’t need to submit W-2s or tax returns. You can refinance in as quickly as one week!
- VA Cash Out Refinance – up to 100% LTV. The funding fee can be added to the loan balance, in addition to the full value of your home. This means that if your home’s value is $600,000, and you have a 2.15% funding fee, then your total loan can be $612,900. The funding fee varies between 2.15% and 3.3%. Check the VA Funding Fee Table to determine your rate.
- Regular Rate Interim Refinance – if you have an existing conventional loan, you can refinance into a VA loan at up to 100% of your home’s value. The VA funding fee varies between 1.25% and 3.3%. Check the VA Funding Fee Table to determine your rate.
The VA Funding Fee can be financed into the new refinanced mortgage. Unlike the FHA loan programs, there is no refund of your original VA Funding Fee if you refinance an existing VA loan.
The following persons are exempt from paying the VA Funding Fee:
- Veterans receiving VA compensation for service-connected disabilities.
- Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.
- Surviving spouses of veterans who died in service or from service-connected disabilities.
Mortgage Refinancing Closing Costs – Examples
Here are some examples of closing costs, to give you an idea of what to expect.
Conventional Home Loan Refinance
In this example, the borrower refinanced 80% of the property’s appraisal value. As a result, there is no mortgage insurance. The new loan principal amount was $378,000.
- Lender Appraisal – $450.
- Lender Processing/Underwriting Fee – $1486.
- Pro-Rated Interest – $86.63.
- Lender Impound Account Deposit – $2072.17.
- Escrow Fee – $525.
- Title Insurance Premium – $450.
- Notary Fee – $175.
- Government Recording Charges – $69.
Total Mortgage Refinancing Closing Costs: $5313.18.
FHA Home Loan Refinance
Here’s an example of an FHA Streamline Refinance, which means a FHA loan refinances an existing FHA loan. The new loan principal amount was $328,053. The original FHA loan started within the past 36 months. As a result, the borrower received a partial refund of the Up-Front Mortgage Insurance Premium (UFMIP).
- Lender Appraisal – lender does not require an appraisal for an FHA Streamline Finance.
- Lender Processing/Underwriting Fee – $1420.
- Pro-Rated Interest – $91.
- FHA UFMIP for new loan – $5642.19
- Lender Impound Account Deposit – $479.43.
- Escrow Fee – $525.
- Title Insurance Premium – $450.
- Notary Fee – $175.
- Government Recording Charges – $97.
- Partial Refund of UFMIP from original loan – CREDIT of $3507.53.
Total Mortgage Refinancing Closing Costs: $5372.09.
VA Home Loan Refinance
The VA Streamline Refinance, or IRRRL, is a VA loan to refinance an existing VA loan. The VA Funding Fee is 0.5%. The new loan principal amount was $355,312.
- Lender Appraisal – Lender does not require appraisal for an IRRRL.
- Lender Processing/Underwriting Fee – $1486.
- Pro-Rated Interest – $164.27.
- VA Funding Fee – $1776.56
- Lender Impound Account Deposit – $1926.22.
- Escrow Fee – $545.
- Title Insurance Premium – $450.
- Notary Fee – $175.
- Government Recording Charges – $69.
Total Mortgage Refinancing Closing Costs: $6592.05. The non-recurring closing costs (everything except pro-rated interest and lender impound account deposit) were financed into the loan. The borrower paid only $2090.49 out of pocket to refinance.
What If I’m Underwater on My Mortgage?
VA and FHA Streamline Refinances do not have an appraisal requirement. You can refinance using the original purchase price as the home’s value.
Property Tax Postponement Program
If you are currently taking advantage of the Property Tax Postponement Program in California, keep in mind that refinancing your home will make all postponed taxes and interest due immediately. Read my article about the Property Tax Postponement Program for more information.
The Bottom Line
Before you refinance your home, estimate your mortgage refinancing closing costs. Costs are lower, and the approval process is easier, than a home purchase. If the interest rates are considerably lower, it’s usually worth it.
In addition, if you are 62 or older, you may be eligible to refinance with a Reverse Mortgage. Reverse mortgages do not require a monthly mortgage payment. Read more about Reverse Mortgage Costs.
Finally, contact me with any questions. Good luck!
I couldn’t have written this article without the expert advice of Nick Richardson:
Nick Richardson is a mortgage banker with EZ Fundings in San Diego, California, NMLS #966361. He can help you finance or refinance properties located in California. Nick can answer all of your questions about mortgage programs, with no hassle, no obligation. Contact him at 760-402-6962 or e-mail nick@ezfundings.com.
