Cost of cashing out -Brrrr

[Carrie Giordano]

I'm going over my options to cash out on two properties. I spoke with a few local lenders today and was a bit surprised at the cost to refinance. I would love other people's opinion on the current going rates. 

The lender I am most interested in working with said the closing could run me $3600-$3700. He did say that estimate may be a little high but he wanted to be prepared for that. He said the bank charges $1195, an appraisal will probably be about $475 and the rest are title fees. Does this sound fairly accurate? It seemed very high to me for title fees. 

[Eddy Dumire]

Originally posted by @Shawn Thom:

I just did one in Tx for $60k cash out and paid $1951 in closing fees including title insurance.  Admittedly, that was very cheap from my experience.

I put a copy of HUD to show break down. sorry for my ghetto scratch outs :)

It's worth noting that in the example provided by Shawn, all the 700's items are being paid to your realtor (if a purchase).  You would negotiate these fees with them (beforehand hopefully).  These are usually paid on the seller side.

The 800's lines are fees associated with the loan itself.  These are negotiated with the bank providing the mortgage.  An "Origination Fee" is money you're paying just for the privilege of getting a loan from that bank.  Some won't charge this.  Next is the loan discount.  This is additional fees that you pay in order to have the rate lowered from whatever the day's par (or breakeven) rate is.  It's worth noting that these points are deductible but can only be deducted over the life of the property (27.5 years, like depreciation).   The administrative fee is a junk fee that they charge, just because they can.  It's negotiable and can and should be comparison shopped.  The flood cert and flood monitoring fees are pretty typical and I don't think they can be negotiated (technically everything is negotiable though right?)

The 900's are "prepaids"  These are items that you have to buy before they'll let you close.  You have to pay interest for the days left in the current month -- therefore it's cheaper to close later in the month.  You'll also have to prepay for hazard insurance and mortgage insurance (if applicable).

The 1000's are your initial escrow funding.  You'll pay catchup at closing to make sure your escrow account has enough money in it so that it can make all it's payments on time.

The 1100's are all fees associated with settling the loan.  Settlement fees, document preparation fees, title insurance fees, etc are all paid to the settlement company.  Good ones can really help make sure things go smoothly.  Bad ones screw up your title.  It's worth getting to know a good one and paying to use them.  Know that title insurance is really a profit center for the settlement company.  Some say the risk outweighs the cost though so think it through and decide if it's worth it.  I personally get really annoyed when I see garbage here like "internet retrieval fee" and other BS like that.  My last closing I had a fee for "Scanning Fee" paid to Pagestream... WTF is that but BS garbage fees.  It's really worth it to choose your settlement fee even if the seller is offering free title insurance to use their settlement company --- as they do with the auction sites.

1200's are government taxes, recording fees, etc.  These are negotiable on election days only with your state and local government officials.

1300's are other fees paid to other people like termite inspections, surveys, buyers premium fees paid to auction sites, etc.

To Summarize....

Negotiate the 700's with your sales agent before you even start shopping for a house.  Focus on negotiating and comparison shopping the 800's with your lender.  Focus on negotiating and comparison shopping the 1100's with your settlement company.  Minimize the hazard insurance by comparison shopping your insurance policy.  Minimize the interest prepaids by closing late in the month.  None of the other items are very negotiable.

Final note... if you're getting a conventional (not portfolio) loan, your lender will probably be selling your loan to the secondary market.  They will likely sell it for more than it's worth -- i.e. 102% of the value.  This is basically a kickback to the loan originator of 2% in exchange for getting your loan.  The higher the rate they sell you, the more they get for your loan on the secondary market.  Similarly, if they give you a really low rate, they may only get 98% for your loan... this is when you'd pay discount points.

Bottom line is that your lender is making more money than is likely indicated on the settlement statement.

I hope this helps.  I worked for a mortgage insurance company when I was much younger and learned a whole lot there.  I also recreationally review settlement statements and find items to dispute for family and friends :)  Some have suggested I open a business and charge for the service.