When it’s time for a mortgage refinance, many people are surprised to find out that many of the same closing costs and fees which they paid when they originally bought their house, need to be paid again. What are these costs? And which can you expect to pay again?
The amount of time it’s been since you bought your house plays a big role in how much you need to re-pay. As a rule, a lender wants to see an appraisal of your home so that he can prove to his superiors that the property is worth at least as much as he’s agreed to loan you. Banks aren’t typically in the real estate business, so if you should default on the loan, the lender wants to know that he can recover at least the majority of the loan by selling off that property.
A current appraisal is often required for a mortgage refinance. Have you added floor space by building on a room or even boxing in attic space for a bedroom? Changes such as these can increase the value of your home. If you’ve done major renovations or even added a pool, you may have raised the value of your property and the appraisal will reflect those changes.
You’re likely to be limited to some percentage of the value of your home – probably 80 or 90 percent. If the appraisal shows that your property is now worth more than when you bought it, you may be eligible for a larger loan or better terms.
If your credit has improved over the course of your loan, you may now qualify for better rates and terms than when you took out the original loan. Some people even use that status change as a reason to seek a mortgage refinance.
You’ll most likely pay closing costs for taking out a mortgage refinance as well. The lender is charging you for rewriting the loan, going through the steps and creating the paperwork.