Your up-front costs for a mortgage refinancing loan depend on two major factors. First, the way you choose to pay your closing costs has an impact on your initial cost. Second, your need to put down a deposit depends on your lender. Lenders are free to ask for an up-front deposit, which also means you're free to choose a lender that doesn't require one, if you prefer.
Typical Closing Costs
Loans aren't inexpensive to process. Lenders need to get information from third parties -- such as credit reports and appraisals -- that cost money. In addition, a title insurer and escrow company usually are involved to handle the nuts and bolts of verifying that the property's ownership record is clean enough to assure the lender about closing the transaction. The lender has its own expenses, including paying the salesperson who brought you in. Your community also may charge a tax on new mortgages, and there are also miscellaneous fees, such as a charge for recording the mortgage against your property's title. These don't include additional money you may need to pay to fund your escrow account with money for property taxes or your insurance premiums.
No Closing Cost Loans
When taking out a no closing cost refinance -- paid for by either increasing your loan balance or by increasing your interest rate through a yield spread mechanism -- the lender pays the closing costs for you. At the time of closing, all of the fees are due, but a credit that cancels out these fees comes from the lender, either because you borrowed a little extra or because the lender is providing a rebate for your higher interest rate. In these types of loans, there is no need for an up-front deposit because you aren't expected to spend anything. Some lenders may charge them anyway, especially to cover the appraisal, although the deposit may come back to you at closing.
Borrower-Paid Closing Costs
The closing costs on your loan could be pretty sizable. According to Bankrate's June 2012 survey, the national average closing costs for a $200,000 loan with 20 percent down were $3,754, not including prepaid taxes or insurance. In this instance, some lenders may want you to put some money down at the beginning of the loan process. They can use the money to help pay some of their out-of-pocket costs, and it's also a sign that you have the ability to pay your closing costs when the time comes.
The Good Faith Estimate
Whether or not you put down a good faith deposit when you start your refinance process, you have a right to know what the costs will be and, if you put down a deposit, how it will be used. Your lender is required by law to provide you with a good faith estimate. The GFE, as it's frequently called, outlines what the lender thinks the loan will cost to provide. While it can change a bit over the course of closing your loan, it should be pretty close to your final closing costs. If you put down a deposit, the GFE should show you that it gets credited to your final expenses. The final settlement statement also will show you exactly how everything breaks down.
- Bankrate: U.S. Closing Costs Map
- Zillow: List of Closing Costs and Fees
- QuickenLoans: All About the Quicken Loans Deposit
- SIRVA Mortgage: Understanding Your HUD-1 Settlement Statement
- Hawaii's Homes: What Is a “True No Cost” Refinance?
- ClosingCorp. "ClosingCorp Reports Average Mortgage Closing Cost Data for 2019," Pages 1, 3, and 4. Accessed August 15, 2020.
- U.S. Congress. "12 USC Ch. 27: Real Estate Settlement Procedures." Accessed August 15, 2020.
- U.S. Department of Housing and Urban Development. "Mortgage Insurance Premiums," Page 1. Accessed August 15, 2020.
- Consumer Financial Protection Bureau. "What Is Private Mortgage Insurance?" Accessed August 15, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.