The cost to refinance a mortgage in California will vary from application to application, but generally speaking, you should anticipate paying $2,800 to $3,800, depending on the size of the loan and the loan program.
This is based on my 17+ years of experience as a Loan Officer in the state of California. The amount listed does not include lender credits, which would lower the amount, nor does it include discount points or origination fees (which would raise the amount).
With some knowledge and preparation, you can avoid paying thousands of dollars in junk fees on your next refinance transaction. And there is no secret insight about lowering the cost to refinance a mortgage; just an understanding of how the refinance process works and being prepared is all you need.
The Cost Breakdown
Here is the refinance cost breakdown for a mortgage transaction.
- Lender Fees: $1100.00
- Tax Service: $80.00
- Flood report: $10.00
- Credit Report: $75.00
- Appraisal: $575.00
- Escrow: $550.00
- Title Insurance: $500.00
- Notary $150.00
- Recording Fees: $350.00
Total = $3,390.00
It is important to remember that this is just a generic refinance cost breakdown and does not include any lender credits or points. Also, some refinance transactions don’t need an appraisal, or sometimes the lender refunds the appraisal fee.
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How To Lower Your Costs
There are some simple ways to lower your costs with your next refinance. Recognizing junk fees, learning to focus on the total cost of the loan, and understanding the difference between a Loan Estimate and a Closing Disclosure are just some things that will help you lower your cost to refinance.
I will go into this in further detail, but never just call your mortgage company and be prepared before you start requesting quotes. Below we’ll cover each step so that you understand how to lower your costs on your next refinance transaction.
Recognize Junk Fees
To lower the cost of refinancing a mortgage, we must clearly explain the difference between junk and legitimate fees.
- Lender Application fees
- Lender Funding fees
- Lender Rush fees
- *Lender generic Processing fees – there is an asterisk because some lenders charge a legitimate processing fee rather than an underwriting fee.
Not Junk Fees
- Underwriting (or Administration) fee that’s less than $1,200
- Tax Service and Flood Certificate
- Credit Report fee (ask to see the invoice)
- Appraisal fee (if one is needed)
- Title, Escrow, and Recording fees
- FHA Funding fee (if you are doing an FHA loan)
Understanding the difference between junk and legitimate fees associated with refinancing a mortgage is important to the overall loan process.
Focus On The Total Cost
Far too often, people focus on the label of a specific cost or fee rather than the total cost to refinance. For example; sometimes a potential client will say they were quoted a “no-point” loan at a super low rate, and I ask them the following question;
What is the total cost of the loan, and are they charging any origination fees?
90% of the time, the answer is “I don’t know” because many people believe a no-point loan is a no-cost loan (it’s not), and Loan Officers know this. Second, many “no-point” loans have origination fees which are basically points; however, they are not “discount points,” which is different.
There is a straightforward way to get to the bottom of what fees you are paying. Just ask this one simple question;
What is the total cost of the loan; for everything?
Don’t get hung up on lender fees, points, origination fees, or third-party fees because this is exactly what the Loan Officer wants you to do – focus on something so that they can charge more in other areas.
By asking, “What is the total cost of the loan; for everything?” you’ll have a specific number so when you receive your Loan Estimate or Closing Disclosure, you can add up all these to see if they match.
Know The Difference Between Disclosures
Three of the most important disclosures you’ll see during the refinance process are:
- Loan Estimate
- Locked Loan Estimate
- Closing Disclosure
A Loan Estimate is an initial disclosure with your interest rate and a breakdown of your estimated costs and fees. A key area of the Loan Estimate is the top right corner of the first page. This is where you will confirm whether your rate is locked. If it’s not locked, you’ll receive a second Loan Estimate once the loan rate is locked.
Now for those that lock upfront (at the time of application), you’ll only receive a Locked Loan Estimate and a Closing Disclosure. If you think your rate is locked, make sure you see the correct box checked in the top right corner of page one.
Now, if you followed my rule of asking what are the total costs for everything, you can now go through the Loan Estimate and add up all the fees. This step alone could save you hundreds, if not thousands, of dollars, and it only takes a few minutes.
Are Their Examples Of Legitimate Differences?
Title, Escrow, and Recording fees might be listed a bit higher on the Loan Estimate than your initial quote, as they are usually listed as a worst-case scenario. And the difference is more like $100 – $500 (depending on the loan amount), not thousands of dollars.
For example, some title and escrow companies quote $350 – $450 (for most loans) for government recording fees; however, they can come in lower when the loan closes. That lower amount will be reflected on the final Settlement Statement. Another example is that the lender may require a specific endorsement from the title company, which may increase your costs by $50 – $200.
HOA Certification Fee
If you live in a Condo or Townhome, your Loan Officer must complete an HOA Certification. It’s a multi-page form, and it’s completed by your HOA or property management company.
And usually, there is the HOA Certification Fee, and that estimated fee is listed in the Loan Estimate. It’s important to know that this is not a fee charged by the lender, so when you see it listed in the Loan Estimate, know that it most likely will change.
The HOA Certification Fee is charged by your HOA or property management company.
The Closing Disclosure is an essential document. Once this document is issued, the fees can not go up, and no new fees can be added to the closing documentation. The Closing Disclosure is issued at least three days before you sign your loan documents, so you’ll have plenty of time to review them.
And what are the two most important things to review?
Your interest rate (make sure it’s accurate) and the total amount of fees being charged.
Never Just Call Your Current Lender
Never just call the mortgage company that currently handles your mortgage. You’ll almost always pay more than you need to. Sometimes it could end up costing you tens of thousands of dollars in extra fees and interest.
And take it with a grain of salt if the Loan Officer claims it’s a much easier process since they already have your mortgage because it’s not. Refinance requirements are generally the same across most mortgage companies if you are doing a Conforming loan, an FHA loan, or a VA loan.
Call two to three mortgage companies with at least an “A” rating with the Better Business Bureau and talk with a Loan Officer with at least five years of experience. Ten years or more is even better.
This is the best way to lower your cost to refinance.
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Be Prepared Before You Obtain Quotes
Being prepared before you obtain your refinance rate quotes will lower your cost to refinance and save you lots of time. The first step to getting prepared is to gather your income documentation, a mortgage statement from your current lender, and your homeowner’s insurance declaration page (or, at a minimum, the contact information for your insurance agent).
Having your refinance documentation ready to go means you’ll be better prepared to answer the Loan Officer’s questions.
It also means you can send in your documentation faster, which helps speed along the process. When a Loan Officer sees someone is prepared, they are more likely to go that extra step in making sure you obtain the lowest rate possible at the best possible terms.
If you go into the process unprepared and take a long time putting together your documentation, then the Loan Officer is more likely to focus on clients who make their job easier. Chasing down clients for their refinance documents is time-consuming, so the more you can help your Loan Officer with the process, the better off you’ll be.
Here are a few guidelines to follow when getting quotes
- Avoid companies that don’t have a rating with the Better Business Bureau
- Avoid companies that have less than an “A” rating with the Better Business Bureau
- Be careful of Loan Officers with less than five years of experience, and be extra cautious with Loan Officers that have less than one year of experience.
- If a Loan Officer is short with you, unnecessarily rushes you, and avoids answering questions with a direct/specific answer, that usually is a red flag.
- Never, ever give a credit card number when inquiring about a loan. Some companies say they are required to do this to “secure your rate,” but thousands of other companies don’t do this. Work with the ones that don’t do this.
Working with an experienced Loan Officer that has a great reputation will help you avoid scams. They will also do a better job of helping you understand the cost of refinancing a mortgage.