Can you negotiate closing costs on a refinance?
Refinancing your home loan can provide a number of benefits for your personal finances, including a shorter loan term, access to home equity, a lower interest rate, and potentially getting rid of mortgage insurance.
Even so, the high closing costs of a new mortgage loan can be discouraging for many homeowners.
While most people would like to negotiate lower closing costs, not everyone is sure about the best way to ask their loan officer to waive fees or grant discounts.
Fortunately, negotiating closing costs on a refinance is possible, and borrowers can save hundreds of dollars or more with just a little extra effort.
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How to negotiate closing costs on a refinance
When negotiating the closing costs of your refinance, it’s important to understand where you can save money.
Refi strategies like comparing lenders, requesting Loan Estimate forms early, and taking advantage of available lender credits can help most borrowers lower their closing costs.
The most important action you can take when preparing to refinance is to comparison shop.
This means requesting mortgage quotes from several competing lenders, evaluating their interest rates and fees, and choosing the best deal.
Shopping accomplishes two things. First, checking out several programs helps you recognize a good price when you see it. In addition, approaching lenders with competing deals in hand may pressure them to come up with better offers.
And that’s just the start of what you can achieve by sharpening your bargaining skills.
Simply obtaining 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 that’s small potatoes, consider this: A rate reduction from 4.5% to 4.0% on a $200,000, 30-year conventional loan equals $60 per month – nearly $22,000 over the life of the loan.
Unfortunately, the CFPB reports, 47% of borrowers don’t do this – potentially missing out on the best rate for their mortgage.
Ask for Loan Estimate forms early
Loan Estimate forms provide itemized information about mortgage fees and services. They give more detail than an initial quote, but lenders often don’t supply borrowers with a Loan Estimate until a mortgage application is submitted.
However, there’s nothing stopping you from requesting a Loan Estimate earlier in the negotiating process.
Your Loan Estimates will disclose the terms of your new home loan, including interest rate, loan amount, and monthly mortgage payments.
They also show the vendors that your lender prefers. However, since you are not obligated to use these prefered vendors, here’s where you can save some money.
Shop around and compare fees from lower-priced appraisers and title companies to get a better deal on your closing costs.
Consider a no-closing-cost mortgage
Some lenders offer no-closing-cost refinance loans that don’t require borrowers to pay upfront closing costs.
The lender will roll closing costs into the new loan amount — spreading the fees over the life of the loan, or waive closing costs entirely, using lender credits, in exchange for charging a higher interest rate on your new home loan.
While you’ll effectively negotiate the closing costs of your refinance to zero, lender credits and no-closing-cost mortgages can end up being more expensive in the long term than just paying costs up front.
But if you’re ready to refinance and don’t have the money for 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 may provide valuable incentives to keep you as a customer.
Nonetheless, mortgage lenders might not extend an offer or discount unless you ask. So see if your current lender is willing to waive any of the closing costs to keep your business.
Ask for waivers, discounts and rebates
Knowing which closing cost fees are negotiable on a refinance loan will help you save money and get the best deal.
So ask potential lenders which fees can be discounted or waived all together. You never know what you can save when you take the time to ask.
In a competitive mortgage market, some loan officers may offer borrowers incentives and rebates that may save you a few hundred dollars at closing.
Which refinancing closing costs can you negotiate?
Mortgage disclosures may contain a variety of fees – those imposed by the lender, those required by the government, those paid to third parties like a title company, and prepaid expenses like property taxes and homeowners insurance.
As mentioned earlier, these fees are disclosed in a Loan Estimate. By law, mortgage lenders must issue one within three business days of receiving your mortgage application.
This schedule helps you identify fees to negotiate.
Many in-house lender fees and third-party vendor fees are negotiable when refinancing.
Section A of your Loan Estimate lists the lender charges. Regardless of what the lender fees are called – processing, underwriting, or origination — it’s the total cost that matters.
Borrowers and home buyers can save money on closing costs by negotiating the lowest total lender charge for their interest rate.
You can also save money by negotiating third-party vendor fees, which can include home appraisers, credit reporting agencies, home inspectors, escrow services, and title insurers.
Some of these third-party services are negotiable, and others are not.
Third-party fees listed in Section B are not negotiable, while providers listed in Section C can be chosen by the borrower, and it’s those fees that may be negotiated during closing.
Loan application fees
Lenders charge a range of in-house fees to obtain a loan, and most of them can be negotiated to lower your closing costs.
Ask your lender which loan application fees can be discounted or waived entirely. If you’re not happy with the concessions your lender is willing to provide, look for a company that is willing to negotiate its loan terms with you.
Loan origination fees
Some lenders charge origination fees to process new loan applications, and since it is an in-house charge, loan origination fees can be negotiated. While they vary by lender, these fees often average between 1%-3% of the total loan amount.
Many borrowers ask to waive origination fees and request rebates or discounts from their potential lenders. When shopping for your mortgage refinance, selecting a lender with the lowest origination fee, or no fee whatsoever, can possibly save you thousands of dollars at closing.
An underwriting fee is another in-house cost that some lenders charge to evaluate a loan. This fee may be charged instead of a loan origination fee, or in addition to one.
Your loan officer may be willing to negotiate underwriting fees. Again, it’s important to shop your mortgage refinance across multiple lenders to avoid as many of these upfront fees as possible.
While homeowners insurance is required by lenders — and, as such, is non negotiable — borrowers can save money at closing by comparing rates from 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 title defects that are not uncovered during the initial title search.
Similar to homeowners insurance, title insurance is a non-negotiable expense, but you can shop for discounts and ask the title company to waive any add-on fees, such as copy fees and mail or courier charges.
You can often reduce your title insurance premium by having your current provider re-issue your policy instead of purchasing a new one from a different company. This discounted premium is called a “short rate” or a “re-issue rate.” Typical discounts run between 20% to 40%.
Credit reports, flood certifications, and appraisals are typically non-negotiable closing costs found under Section B of your Loan Estimate.
Lenders choose 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 mark them up.
Appraisal fees cover the cost of having your real estate’s market value estimated by a professional appraiser, but borrowers may not always need an appraisal when refinancing a mortgage.
Homeowners with government-backed VA, USDA and FHA loans may be eligible to skip an appraisal with a streamline refinance.
Additionally, in some cases, Fannie Mae’s Desktop Underwriting program or Freddie Mac’s Automated Collateral Evaluation (ACE) program may provide an appraisal waiver for homeowners with a conventional loan.
Credit report fees
At some point during your refinance, a lender will check your credit history to determine creditworthiness.
Credit check fees cover the cost of this process and are generally non-negotiable. However, it won’t 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 a recording fee. Your lender will not be able to negotiate these costs.
If your property taxes are due and have not been paid by your previous lender, then they may be included in your closing costs.
Bottom line: You can negotiate closing costs on a refinance
Shopping for a refinance mortgage is easier than it’s ever been, thanks to the wealth of information available online.
Simply contact several competing mortgage lenders and request mortgage quotes. Some lenders will issue a Loan Estimate right there; others will create a worksheet or scenario.
What are today’s refinance rates?
Today’s mortgage rates continue to create great refinance opportunities for many consumers. Check out current offers from mortgage lenders and see if you can pay less.
Once you have your quotes, circle back to your lenders and see which one comes up with the most attractive offer.