How to evaluate whether the fees on a refi are fair?

Question

I'm applying for a refi and I think the fees involved are too high. The trouble is that I don't know out of the 20 or so various things in the closing costs estimate what is reasonable, unchangeable, negotiable, or outrageous. My quick research tells me that closing costs average between 2% - 5%. These costs (total closing costs divided by loan amount) are at about 5.1%. My first impression: "Yeah, right. Cut those costs in half or I walk." I'm willing to accept that I'm simply mistaken and these are reasonable, so my question is evaluating the meaning and fairness of these costs in general. Not necessarily whether my explicit costs are fair now and into the unknown future.

Here's their break down of the loan costs:

Loan Costs

A. Origination Charges $2,951

1. % of Loan Amount (Points)

2. Biweekly Processing Fee $350

3. Origination Fee $2,022

4. Underwriting Fees $579

B. Services You Cannot Shop For $ 1,026

1. Appraisal Fee $900

2. Credit Report $32

3. Flood Certification $15

4. Tax Service $79

C. Services You Can Shop For $2,260

1. Title - Closing Protection Letter $25

2. Title - Courier Fee $20

3. Title - Document Retrieval Fee $30

4. Title - Electronic Document Delivery Fee $10

5. Title - Electronic Recording/Filing Fee $9

6. Title - Endorsements to Title $150

7. Title - Lender's Title Insurance $1,009

8. Title - Settlement Fee $907

9. Title - Simultaneous Issue Fee $75

10. Title - Wire Transfer Fee $25

D. TOTAL LOAN COSTS (A + B + C) $6,237

Other Costs

E. Taxes and Other Government Fees $158

1. Recording Fees and Other Taxes $158

2. Transfer Taxes

F. Prepaids $810

1. Homeowner's Insurance Premium ( months)

2. Mortgage Insurance Premium ( months)

3. Prepaid Interest ($18.0041 per day for 45 days @3.25 %) $810

4. Property Taxes ( months)

G. Initial Escrow Payment at Closing $2,423

1. Homeowner's Insurance - $34.61 biweekly for 7 bwk - $242

2. Mortgage Insurance - biweekly for bwk -

3. Property Taxes - $155.77 biweekly for 14 bwk - $2,181

H. Other $0

I. TOTAL OTHER COSTS (E + F + G + H) $3,391

J. TOTAL CLOSING COSTS $9,628

1. D + I $9,628

2. Lender Credits

Calculating Cash to Close

1. Loan Amount $202,200

2. Total Closing Costs (J) -$9,628

3. Estimated Total Payoffs and Payments -$194,028

4. Estimated Cash to Close From Borrower $1,456

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Estimated Closing Costs Financed

(Paid from your Loan Amount) $8,172

Here's an image of the estimate in case I missed something above.

Answer 1

Typically in the US, you can easily get quotes for both the interest rate and the APR of a loan. While the figures are similar, the APR gives you a better indication of the total cost of the loan, since it essentially combines the interest rate and the closing costs into a single figure, which makes it a good way to compare different loan offers.

So, the simplest way to see if the closing costs you are being quoted are reasonable or not is to shop around and see how this loan compares to others.

If you know a realtor you trust, you can ask for recommendations for local loan officers, and shoot each of them a quick email with a general outline of the kind of loan you're looking for and some general details about the loan. I did this when I bought my house, and I got responses within a day or two from most of them, although you might not get as fast of a response right now, as a lot of people are also currently refinancing given the low interest rates.

In terms of your current estimate, here is how it compares to mine, but keep in mind this is one data point, and many of these fees are going to be dictated by local markets:

1. Don't worry about the Prepaids and Escrows, as they aren't really fees. You need to pay them, but you're going to pay the same amounts no matter where you get the loan, assuming the interest rate is the same (they may fluctuate in different offers based on the closing date assumed in each, so it's good to make sure you aren't including these numbers in any comparisons)
2. The origination charge seems really steep, 4x what I paid
3. I also didn't need to pay a fee for biweekly payments, or pay separate underwriting fees
4. The appraisal fee is twice what I paid, but the other fees in that section are in line
5. The settlement fee is ~$300 more than what I paid