What are Low Closing Costs and No-Closing-Cost Refinances?
Low closing costs and no-closing-cost refinances cannot be ignored when you are looking to buy a home or refinance your home. These can be significant, in the thousands of dollars, so it’s important that you do your due diligence and ask your mortgage broker about them.
At your home loan closing, you will be required to pay your down payment and other various closing costs and fees. Most of the closing fees are paid by the buyer, but some of the fees are prorated, by date, to the seller and the buyer.
The only fee that can be collected at the time of application, by federal law, is the credit report fee. The appraisal fee cannot be collected until the borrower has received the Lender’s Estimate and notified the lender that he or she has chosen to proceed with the application.
So what differentiates a low-closing cost and no-closing-cost refinance? Some mortgage fees vary from lender to lender, but generally, taxes, appraisals, credit reports, and title insurance should be comparable for all borrowers. At Fox Valley Mutual Mortgage Brokerage we understand that closing costs can be confusing. During your home loan process, we’ll inform you of all of your fees ahead of time so you can ask questions and gain clarity before closing. Reach out to our team to get started today!
Common Closing Costs
Loan Origination Fee at Low Closing Costs and No-Closing-Cost Refinance
A percentage of the mortgage (generally 1%), is charged to set up and evaluate the loan application. This fee is a revenue item for the lender and/or broker. Also known as “points,” they were a very common charge up until the late 1980s. However, consumer advocates advised borrowers to shop for home loans without “points.” This fee is currently rarely charged, though some mortgage lenders still try to charge it for government loans. Loan origination fees are common for non-qualified mortgages that do not conform to the underwriting guidelines of the secondary market.
Credit Report Fee in Low Closing Costs and No-Closing-Cost Refinance
Requested by the mortgage lender in order to evaluate your home loan or HELOC application (generally obtained from one of three major credit reporting agencies: Equifax, Experian, TransUnion).
Appraisal Fee in Low Closing Costs and No-Closing-Cost Refinance
Used to obtain an independent appraisal of the subject property and determine its value. The appraised value helps determine the amount the mortgage lender will loan on that property.
Dividing the current year’s property taxes between the buyer and seller. The buyer is responsible from the date of closing until the end of that year. The seller is responsible from the first day of the year until the date of closing.
Verifies the legal position of the home on the subject property and ensures that there are no encroachments or setback violations on the subject property.
Title Search Fee
This is charged for a detailed search of the historical records related to a property to ensure that the seller is the legal owner, that there are no liens, restrictive covenants, outstanding judgments, or other claims against the property (A certificate of title issued as a result of a title search does not necessarily protect against hidden defects which did not show up in the search – often the mortgage lender will require title insurance for protection against such claims).
Understanding Closing Costs Refinance
Title Insurance Fee
In this kind of closing costs refinance often required by the mortgage lender for protection against hidden title defects; a mortgage lender’s policy only protects the lender – a buyer may also opt to purchase an owner’s title insurance policy.
An optional fee paid upfront to reduce the interest rate paid on the home loan.
Recording or Transfer Fees
A small fee charged to cover the paperwork to record the home purchase and transfer ownership
Interest from the closing date to the end of the month generally charged to the buyer.
Buyer’s prorated portion of state and local government property taxes already paid by the seller (such as annually paid taxes).
Property Escrow Account Payments
In low closing costs and no-closing-cost refinance typically required by mortgage lenders when borrowers have less than a 20% down payment on Conventional mortgage loans. Required on FHA, VA and USDA mortgage loans. Sets aside funds for the upcoming payments of property taxes, the hazard/windstorm insurance annual premium, the flood insurance annual premium if the subject property is located in a federally designated flood hazard zone, the monthly private mortgage insurance premium on conventional mortgage loans with less than 20% down and the monthly mortgage insurance premium for FHA loans.