Foreclosure is a scary situation many homeowners across the nation are currently facing in the next year, especially those who bought homes during the booming real estate market and financed their purchase with an adjustable rate mortgage (ARM). Many of these mortgages are beginning to reset to a much higher rate than the homeowners can afford. There are dozens of options for homeowners facing foreclosure and the easiest solution is refinancing. However, no matter what your financial situation is, or why you are facing foreclosure, it is important to note there will be costs associated with a foreclosure refinance.
When looking for a refinance mortgage, especially a foreclosure refinance, it is important to carefully consider all the options. The worst thing you can do is act too quickly without examining all the angles of the mortgage refinance before you sign it. Hidden costs are one of the biggest pitfalls for homebuyers, especially for those who make an uninformed decision to refinance. Even though you paid closing costs, or rolled them into your financing plan, when you took out your original mortgage, you will still be required to pay them to refinance.
The basic costs associated with refinancing a home are:
· title and escrow fees
· lender fees
· points (an optional expense)
· appraisal fees
· credit fees
· insurance
· taxes
The most significant of these refinancing costs are the title and escrow fees, although they should not be as much as they were with your original loan. As with any home mortgage, you have the option of rolling these fees into your mortgage balance, or you may pay them at closing.
Some lenders offer a no cost mortgage. With this type of mortgage, a borrower can avoid adding fees to their existing mortgage or paying closing costs with cash by agreeing to a higher interest rate. If you choose this option, it is important to make sure the overall monthly payment is an amount you can afford, especially if you are facing foreclosure as a result of an ARM mortgage resetting to a much higher interest rate.
Generally, you should be prepared to pay between two and four percent of the cost of the property as pre-paid interest, which will take care of the time between your refinancing closing and your first mortgage repayment. Check to see if your old loan has money in an escrow account, which will pay for these fees.
If you are facing foreclosure, do not let strict lending standards deter you from contacting lenders regarding refinancing, especially your current lender. By communicating with your current lender, as well as getting quotes from other lenders, you will have taken an important first step in reducing the costs associated with refinancing. Why? Because you have educated yourself with several quotes that you can bring back to lenders and begin negotiating lower closing costs and fees. Unless you are consistently late and seriously behind in what you owe, most mortgage companies will be willing to work with you to keep your business, and may even offer you a refinance plan.
In most cases, in the end, you will pay at least some of the costs associated with refinancing, whether it is up front at closing, typically between two and four percent of the loan amount, or if it is rolled into your mortgage. However, when facing foreclosure, refinancing to a fixed rate that is slightly higher than your introductory rate is far better than losing your home, as long as you are financially able to make the slightly larger monthly payment.