The cost to refinance a home depends mainly on the terms negotiated with the lender. Most borrowers want to keep costs low by comparing rates from several different lenders, because getting favorable terms has the effect of reducing the cost of the loan over its entire term.
Homeowners will incur extra fees if they are getting help from a program such as the Rural Housing Service (RHS), the Federal Housing Administration (FHA) or the VA (Veterans Affairs). The Federal Reserve says that an RHS loan costs 2% of its value, and the FHA charges about 1.75% of the value of the loan. Loans from the Veterans Administration cost between 1.25 and 3.3%.
Loan origination is the method lenders employ to establish a new loan. It involves credit checks for each applicant, preparing documents, evaluating the loan, as well as fees for notaries, lawyers and other personnel. Loan origination processes typically cost from $2,100 to $3,505.
Lenders also evaluate your home in order to assess its value and determine what shape it's in. The Federal Reserve says that home inspections are necessary in order to establish the home's structural integrity. Home inspections can cost from $300-$500; lenders also appraise the home to ensure that the loan isn't overvalued. The typical appraisal costs from $263-$444.
Lenders charge borrowers what is known as "points" in exchange for a reduced interest rate or other concessions. The Fed says that one point is equivalent to 1% of the loan being financed. For instance, if your loan is $250,000, points will cost you $2,500.
These fees can add between three and six percent to the cost of the loan. Refinancing costs average about three percent of the price of a home; in high-tax areas, it can cost five to six percent of the home's value. In most cases, closing and other costs are either rolled into the loan or paid up front.