Whether refinancing a current loan or obtaining a new loan, there are a substantial amount of fees involved, including: processing fees, attorney fees, appraisal fees, title and closing costs, and certain kinds of taxes. One thing the borrower should definitely be aware of is that most closing fees are negotiable in some manner. The most important tips to avoid paying these costs are: question every fee and pay attention to your Good Faith Estimate.
For example, most mortgage lenders charge some type of application fee. This is typically to cover cost of the appraisal and to obtain a mortgage credit report. Remember that, by law, you are entitled to copies of both. Make sure that your application fee is being applied towards these two costs, and question anything else, especially if it seems excessive.
Fees to refuse paying for:
Underwriting fees, wire transfer fees, funding fees, or processing fees are all types of fees that you should consider not paying. These represent costs for the lender masquerading as closing costs for the borrower. Be especially careful with Mortgage Brokers and don't let them pass their overhead fees off onto you.
There is another way to avoid paying an exceeding amount upon closing, and that has to do with points. Points are a fee equal to 1% of the total borrowed amount. Points can be added or subtracted to your loan, so if you decide you do not want to pay any closing fees, you can have the closing costs attached to your new loan in the way of points. This is called a limited cash out mortgage. If you have reduced your interest rate, reduced your loan amount, and shortened your loan term, than you could choose this option and still come out ahead.
On the other hand, you could choose to pay discount points in order to lower the overall amount of the loan, and in doing so, lower the monthly payment. Discount points are actually pre-paid payments, with each point reducing your interest rate. For example, a 30 year loan would be reduced by 0.125% by each discount point. This option works well if you have some extra cash upon closing. Points are also tax deductible.
Your Escrow Account:
Your escrow account is in place to ensure payment for such things as insurance and taxes, and your lender will normally require a deposit during closing. Most escrow accounts should have a "cushion" or an amount of money over the amount that is really needed, but according to HUD, it should never exceed two months worth of payments at the account's lowest point during the year. In order to figure this out, know your taxes and insurance premium payments. This way, you'll know as well if there have been any erroneous transactions (late payments, overcharging, etc.)
To find out exactly what costs are included in closing, visit our FAQ's page.