As interest rates fluctuate, you might think about refinancing your mortgage. This is the cost of taking out a new home loan to replace the one you currently have. If you get a significantly lower interest rate, you could save tens of thousands of dollars over the life of the mortgage. On the other hand, you need to think about potential expenses you might incur during the refinancing process. Because you are taking out another home loan, you may need to pay closing costs a second time. What are some of the most common expenses you might have to pay?
The Mortgage Application Fee
One of the most common expenses is the mortgage application fee. Essentially, this is a fee that the lender will charge for opening up a new application on your behalf. The fee can vary significantly depending on the lender you use, but it is usually a few hundred dollars.
A Home Appraisal
When you took out your first mortgage, the lender probably required you to get your home appraised. The lender wants to make sure they are not financing a home that is not worth as much as its price tag. You still need to get your home appraised again if you decide to refinance your mortgage. The lender wants to make sure they understand how much the house is worth before they give you a loan for it. A typical home appraisal is also a few hundred dollars.
Title Search And Title Insurance
The lender might also require a title search and title insurance. This is important for making sure you protect yourself in the event someone else still holds the title to your house. A title search is usually a few hundred dollars, and title insurance could be $1,000 or more.
Loan Origination Fee
Most lenders charge a loan origination fee that is approximately one percent of the value of the loan. Again, this can vary from lender to lender as well.
Understand These Fees
There are lots of potential fees that a lender might tack on. Fortunately, you do not necessarily need to pay for all of them. Always ask the lender whether they might be willing to waive some of these fees to make the cost less expensive.
If you decide to go through the refinancing process, there are several options available. One of the most popular options is a cash-out refinance. Essentially, you capitalize on the difference between current interest rates and the interest rate on your home loan to keep your payments the same while also drawing equity out of your home in the form of cash. You can use this money to fund your retirement, complete home repairs, or do a renovation project. Even though you can do just about anything you want with this cash, what do you need to know about a cash-out refinance and taxes?
If you are looking for a home, you might need to finance it using a lender, such as a bank or a credit union. There are a number of factors that will influence whether your mortgage application is approved. Then, these same factors will play a role in the terms the lender might offer you. One of the most important factors is called the debt to income ratio, or DTI. It is important to understand how this will impact your mortgage application.