Lower Your Costs On Your Next Refinance:
No one wants to pay lots of fees when they look into refinancing their mortgage and the good news is you don’t have to. With a little knowledge and preparation you too can avoid paying thousands of dollars in fees with your next refinance transaction.
And there is no secret insight nor any magic that’s needed; just an understanding of how the process works and being prepared is all you need. And if you have some questions after reading this article feel free to reach out and I’ll be happy to answer your questions.
Steps To Lowering Your Costs:
- Avoid the scams
- Recognize junk fees
- Focus on total cost
- Know the difference between a Loan Estimate, Locked Loan Estimate and a Closing Disclosure
- Never just call your mortgage company
- Be prepared
Below we’ll cover each step so that you have a good understanding of how to lower your costs on your next refinance transaction.
Avoid The Scams:
This sounds like a no brainer but it’s not as easy as you think. Scam artist are really good at not looking like scam artist and most people don’t know they’re being ripped off until it’s too late. So what should you look for? Here are a few guidelines to follow:
- 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 careful 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 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.
Recognize Junk Fees:
Another no brainer but I think it’s important to specifically state what’s a junk fee and what’s NOT a junk fee:
- 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 (see below).
Not Junk Fees:
- Underwriting (or Administration) fee that’s less than $1,100
- 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 a FHA loan)
Focus On Total Cost:
This is so important. Far too often people focus on the label and the individual amount rather than the total cost of the loan. For example; I constantly hear from potential clients that say they were quoted a “no-point” loan and 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?
99% of the time the answer is I don’t know because many people believe a no-point loan is a no-cost loan and Loan Officers know this. Second, many “no-point” loans have origination fees which are basically points however they are not “discount points” which are different.
I could go on and on about how Loan Officers try to hide the true cost of a loan however the way they do it is not the most important thing. And there is a very simple 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, third party fees because this is exactly what the Loan Officer wants you to do do – focus on something so they charge more in other areas. By asking “What is the total cost of the loan; for everything?” you 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:
Three of the most important documents you’ll see during the refinance process are:
- Loan Estimate
- Locked Loan Estimate
- Closing Disclosure
Now for those that lock up front you’ll only receive a Locked Loan Estimate and a Closing Disclosure. A Locked Loan Estimate specifically says that in the top right corner and if you think your rate is locked make sure you see the proper lock box checked.
Now if you followed my rule on asking what are the total costs for everything you can now go through the loan estimate and add up all the fees. And it only takes 2-3 minutes. 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 worse 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 $375 – $450 (for most loans) for government recording fees however they usually comes in below $200 when the loan actually closes and that is reflected on the final Settlement Statement. Another example is the lender may require a specific endorsement issued from the title company which may increase your costs $50 – $200.
HOA Certification Fee:
And there is the HOA Certification Fee which is listed in the Loan Estimate but it’s not charged by the lender. What is the “HOA Certification Fee”? If you live in a Codo or Townhome your Loan Officer will have to complete a HOA Certification. It’s a form and it’s completed by your HOA or property management company. Usually the HOA or property management company charges a fee (not the lender). This is why it’s not included in the quote but is listed on the Loan Estimate.
So it’s important to keep in mind that the document you are reading is an “estimate” however if there are differences from the quote be sure to ask your Loan Officer to explain the difference. And if you are working with a top rated company and top rated loan officer who has years of experience you can probably trust what they are saying.
The Closing Disclosure is a very important document. Once this document is issued the fees being charged can not go up and no new fees can be added to closing documentation. The Closing Disclosure is issued at least three days before you actually sign your loan documents so you’ll have plenty of time to review.
And what are the two most important things to review?
Your interest rate (make sure its accurate) and the total amount of fees being charged.
Never Just Call Your Mortgage Company:
I know it sounds easy but 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.
Call 2-3 mortgage companies that have 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.
Being prepared before you obtain your quotes will also save you money and lots of time. Gather your income documentation, any mortgage statement from your current lender and your homeowners insurance declaration page (or at a minimum the contact information for your Insurance Agent.
Having your 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. And don’t forget that Loan Officers are people too and 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 his/her job easier. Chasing down clients for their income documents is time consuming so the more you can help your Loan Officer with the process the better off you’ll be.
Loan Officer Kevin O’Connor:
Kevin grew up in California and works with clients throughout the state. From the initial quote to the application to the final closing; Kevin works directly with each and every homeowner and encourages his clients to ask questions so that they’re better informed. He updates koloans.com on daily basis and you can connect with him on social media: Twitter Rates01