Q: Did I pay too much to refinance with my big box lender? The closing statement looks excessive in the fees charged to refinance and create new loan. Is this something I should have looked over for a possible overage?
A: It’s hard to read HUD-1 settlement statements, and even more difficult to know if your charges were excessive. First, you have to separate out fees paid to the lender and charges like prepaid interest on your loan.
If you closed during the first few days of a month, you’d have around 30 days of prepaid interest that you’d have to pay at the closing, which would show in a lump sum on your HUD-1 form. That’s not a fee to the lender. It’s the interest you owe on the money you’re borrowing in the first month of the loan.
Next, you have to separate out the fees you’re paying for real out-of-pocket costs, such as the appraisal (which might be $400 to $500), title insurance, escrow closing fees, and the cost of the lender’s attorney. (Admittedly, the lender has likely tacked on some profit to the wholesale fees it is charged for some of these items.)
As for the lender’s charges, they should be about one percent of the loan or less. In some parts of the country, those lender fees might range from $1,300 to $2,000. But if you have a low credit score or your debt-to-income (DTI) ratios are a bit off, you might have to pay more, plus a higher interest rate.
Either way, the time to really examine and negotiate these fees is before you sign your loan application. While there is a three-day right of rescission (which means you can cancel the refinance within 3 business days), you shouldn’t do it unless there is something egregiously wrong with your loan (the interest rate is wrong, or there is a new term or condition to the loan that you weren’t aware of that changes the structure of your loan.)
If you’re unclear about what you’ve paid, or if the amount on the HUD-1 is wildly different from the good faith estimate you received from the lender, or if the terms of the loan changed from what you were originally promised, you should sit down with your lender and ask him or her to explain it to you.
Read more about refinance fees and how to save costs.
Also, look at the following articles to get an idea of closing costs (while these costs include purchase costs, they also have many others that go along with a refinance):