I have to say that refinancing in North Carolina isn’t fun, nor is it a ball of awesome. I mean, in all honesty, we had to do all of the research ourselves because frankly no one wanted to tell you about the fees and hidden costs that you’ll probably pay if you don’t be careful. Here’s a few things to keep in mind of to take out of the closing costs of a refinance.
- Mortgage Insurance. You only need this if you’re getting a second mortgage and if you don’t have home owner’s insurance. This stuff stings because you have to remember to cancel it even if you’re done with the second mortgage. If you don’t need this, get rid of it.
- In North Carolina, there is a origination fee. This is usually 1% of whatever your loan is although there could be a little extra called an “underwriting” fee. This is normal, but it’s also pure profit for creating the loan for you. In other states, this actually goes away these days, especially on jumbo loans, but in this state, it does not (at least not to my knowledge).
- Put everything in writing. If they’re going to waive something, that should go into the good faith estimate. Also, from experience, attorneys fees range somewhere around $500USD mark.
- Title insurance is a re-issue of your previous title. Don’t buy a new one since that’s a waste of money. Titles are the same everywhere nationally and it usually costs you something like $2 per $1000 on loan. This is for the lender so if they’re trying to get you for a lot more, get your own title from any title insurance company. You could try Chicago Title Insurance Company, whom is one of the major three vendors nationally.
- Don’t get suckered into a prepayment penalty loan. These loans will basically mean that you have to pay the entire interest amount off regardless of how early you pay off your debt. You don’t want a penalty for prepayment which basically means that the moment you pay off your principal, you’re home free for interest payments.
- Did you know that you can get waivers for appraisal fees and such? This all depends on how much you’re shopping out your loan and how large it is. The more money that’s at stake, the more there are negotiations on closing costs. Everything is up for grabs since the banks want to do the loan, especially if you have a spectacular FICO score.
- Don’t roll your closing costs into the loan. That’s plain silly. It might seem like you’re not paying a dime, but in reality, you’re not only borrowing the money of the closing cost, but you’re also paying interest on it. More payment to seem hassle free? I don’t think so.
- Home owner’s insurance. You shouldn’t have to pay this if you already have a home owner’s policy. I don’t know for sure on this, but I’m pretty sure it can be thrown out of the closing costs.
- Regardless of whether or not your house is in a flood plain, you have to pay for the flood certification. Runs somewhere around $15-25 depending on the home.
- If you don’t know how much your house is worth before you start down this path for refinance, check a real estate site like ZIllow. While this isn’t an exact science and there’s not guarantee that the appraiser will value your house close to this price, it’s a number to work with and it seems that banks also use sites like these for their beginning estimations. This will give you an idea on whether or not it’s even worth pursuing the refinance in the first place. On top of this… sometimes it’s not worth getting into a refinance situation if you’ve already paid off a significant chunk of your principal since regardless of the rate, you’re basically getting into another loan from the beginning. The money spent and time has to be accounted for in a refinance.
In the real estate industry, many of these fees are termed as “junk fees”. They’re basically fees that are tagged onto loans to make it seem legitimate but are actual pure profit for the loan generation. Think of it like the certain types of regulatory fees that you sometimes see on utilities or cell phone bills where it’s not tied to any actual law but is made to sound official so that they can collect a little bit more money.
What’s interesting here is that a lot of people lower their rates without understanding what sort of savings you’ll need to save. If the closing fees are $3600, and you’re saving $100/month in mortgage payments by lowering the rate, then this means that each year, you’ll be saving $1200. This means that just to break even on getting the lower rate, you’ll have to hold onto that home for another three years. Is that in your plan? Perhaps. But you need to figure all of this out and believe me when I say that most real estate people that are involved in your loan will probably not go out of their way to tell you about those types of things. In their best interest of course.