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There’s usually not a huge difference in the dollar amount of a borrower’s closing costs between a refinance mortgage and a purchase mortgage. However, there’s one distinct difference in how these two mortgage transactions can work, and that is, in a refinance, a borrower can almost always elect to have the closing costs financed into the new mortgage. Whereas, in a purchase mortgage, the borrower may need to pay those costs out of funds the lender will verify the borrower has in a bank account of some sort before approving the mortgage.

Now, if the borrower does not have those funds, this does not necessarily mean a home can NOT be purchased. There are ways around this challenge, and for more on the strategies and options available in this situation, please consult a Senior Loan Consultant at Mortgage Match by calling toll-free, direct at 1.888.890.5625. Or, a free phone consultation can be scheduled by clicking here. Otherwise, to learn more about closing costs, what they are, and who they’re paid to, please read on…

Purchase and Refinance Mortgages
The costs of closing a refinance or purchase mortgage generally include the following: title and escrow fees, lender’s fees, appraisal fees, credit fees, and insurance and tax impounds. When refinancing, the major expense is the title and escrow fees (though they are not as costly as when purchasing property). When you refinance, you have the option of financing the closing costs by adding them into the new mortgage balance (assuming there is sufficient equity in the subject property to do so), or you may cover the costs with cash at closing. Another increasingly popular option is the no-cost mortgage (usually available with mortgage amounts in excess of $200,000).

With a no-cost mortgage, borrowers can avoid adding fees into their existing mortgage balance, by paying their closing costs with cash, or by taking a higher interest rate; whereby the mortgage originator can cover some or all non-recurring closing costs on the mortgage, (all costs except taxes, insurance and interest) utilizing a lender rebate.

Title & Escrow Fees
Title and escrow fees include both the owner’s and the lender’s policy of title insurance, as well as the escrow fee. Title insurance protects both the buyer and lender by ensuring a clear chain of title, and that those persons, with the legal right to convey title to your property, are the ones doing so. Also, some polices protect against the occurrence of fraud and forgery.

Some borrowers may complain about paying for another title insurance policy when they have already incurred this expense at the time they purchased the property. Keep in mind though, the lender is insured as well as you, the borrower. A new title search is required to insure against there being no new liens or substandard conditions attached to the property. So, on this basis, refinancing creates the need for a new policy for the new mortgage.

Now, most title companies offer reductions (up to 30%) on the price of both the title policy and escrow fees for a refinance. While the escrow fee is a service fee charged by the title company for acting as an independent third party in handling the transaction, and insuring that all parties to the transaction perform as agreed.

Other title fees may include; the fee to notarize your mortgage documents, the fee required to record your deed of trust with your county recorder’s office, as well as miscellaneous drawing, courier and express mail fees. You may call a title company located near the property, provide them with the mortgage amount you’ll be requesting, and they will usually provide you with a free, accurate fee quote.

Lender’s Fees
The flat fees that a lender charges to process and fund a mortgage can assume or be described by a variety of names. They include: underwriting, processing, administrative, document preparation and funding fees. Additional lender fees may include wire, tax service fees and flood certification fees. These fees are charged by virtually all lenders and range from approximately $795-$1,250 in total fees charged.

Appraisal Fees
While appraisal fees are sometimes referred to as a closing cost, they really are not. Because appraisal fees are paid directly to the appraiser shortly in advance of, or at the actual time of the field appraisal. The fee an appraiser will charge to inspect a property will depend on the type of property involved (e.g., single family as opposed to multi-unit) and whether the property will be owner occupied, or used as a non-owner occupied, investment property. The typical fee for a standard, owner occupied, single family home (SFR), condominium or townhouse is $300-$400. An investment property may require a rental survey and an operating income statement to be completed with the appraisal. These extras can add an additional $200-$300 to the cost of the appraisal.

Credit Fees
The fees to check a borrower’s credit (using a tri-merged credit report as all lenders require) range from $20-$35 per person or per married couple.

Insurance Impounds
A homeowner’s or hazard insurance policy will need to be new or current at the time the new mortgage closes. The standard coverage requirement a lender requests is replacement-of-the-property cost coverage. Most lenders require that your current policy be effective for a period of not less than four months after the first payment date on the new mortgage (though some lenders and insurance companies my require you to pay up to a year’s premium in advance). For example, if your current policy expires within two months of the first payment date on the new mortgage, the lender require you to pay two more months premiums. Also, consider checking with your insurance carrier to verify they will accept an incremental vs. annual payment, otherwise you may have to pay for another full year.

If your property is located in a geological hazard zone (e.g. earthquake or flood zone) the lender may require you to have policies in place to cover these hazards as well. Geological hazard zones are established by FEMA, and the property’s appraisal will determine whether the property is located in such a zone by referring to the most current FEMA geological hazard map. FEMA reclassifies hazard zones periodically, and while your property may not have been located in such a zone at the time of purchase, it may now be included in one.

Check with a preferred insurance carrier for a homeowner’s or hazard insurance quote, as well as a quote for earthquake coverage, if it’s required. Contact The National Flood Insurance Program at 800-638-6620 for a flood insurance quote, if it’s needed.

Property Tax Impounds
The lender may require that all delinquent or outstanding property taxes, if any, be paid at mortgage closing. Most counties require the payment of property taxes on a semi-annual basis. But if you happen to be refinancing in close proximity to when your property taxes are due, but not yet delinquent, you may be required to pay the installment in escrow, prior to closing, because your property taxes are now a valid lien on the property.

Purchase Mortgage
If a borrower is obtaining a purchase mortgage, this mortgage transaction’s only difference may be fees for a pest control report (typically $40-125), if the structure isn’t new. Additionally, the title insurance policy is typically 30% higher on a purchase mortgage than a refinance mortgage.