Shop Around for That Refinance, but Don't Delay

Q: I am shopping to refinance my condominium mortgage of about $400,000. The outstanding loan balance is $160,000, and my credit is stellar. In order to refinance with my current lender, they want $2,200 in closing costs. I just financed with this lender three years ago, and there seems to be no special benefit for refinancing with them again. I don't understand why they wouldn't want to keep a good customer and not charge me anything. Any insight?

A: Keep shopping. You might be able to negotiate some of the closing fees with another lender.

When you applied for that refinance loan, you should have received a "good-faith estimate" of all of the closing costs. Let's look at the primary ones:

-- Title search. You bought your condo three years ago. Any new lender, including your current one, wants to make sure that your title is clean. In the past three years, you might have put a second trust on the property, such as a home-equity loan. Or the federal or state government might have slapped a lien on your property for non-payment of taxes. Accordingly, the lender will insist on doing a rundown of your title.

-- Survey. If you are refinancing a single-family home, the lender wants to make sure you have not made any additions to the property that could cause a title problem, such as adding a structure that doesn't conform to local building or zoning codes. So the lender will want you to sign an affidavit stating that you have not done so. But since you are refinancing a condominium unit, no such survey or affidavit will be required.

-- Appraisal. Lenders want assurance that there will be enough equity in your home if they have to foreclose on the property. They are painfully aware that property values have gone down significantly in the past year, so all new lenders will insist on having an appraisal. This will be more expensive now, since the appraisal rules have changed and lenders cannot use their favorite appraisers anymore, but must make sure that the appraiser is completely independent.

However, my experience is that in some cases, your existing lender might waive the appraisal requirement if you can demonstrate that you have a lot of equity. In your case, there is considerable equity.

-- Miscellaneous lender charges. Lenders will often hit you with charges for document preparation or an underwriting fee. These are negotiable, and you should ask each lender you contact to waive or at least reduce them.

-- Title insurance. You do not need to buy an owner's title insurance policy, but the lender will require that you obtain lender's title insurance. Why? I asked Jack Guttentag, a professor emeritus at the Wharton School of the University of Pennsylvania and the Mortgage Professor columnist, this question. He said: "Even if you refinance with the same lender, the existing lender's policy terminates when you pay off the mortgage. Furthermore, the lender is concerned about title issues that may have arisen since you purchased the property. A new title search will uncover any such issues, and you will have to pay it off as a condition for the refinance."

But you might be entitled to a discount based on how long ago you bought your original policy. This is called a reissue rate, and you should insist on it when you go to settlement. This is a charge imposed by the title attorney or title company, not by the lender.

-- Government charges. These are non-negotiable. The local government's recorder of deeds will charge a number of fees, such as for recording the new deed of trust and recording the release of your existing mortgage. Your lender should be able to provide you with a ballpark estimate of these charges.

Everything in real estate (aside from government fees) is negotiable. If you shop around and ask a lot of questions, you should be able to save some money on your refinance. But since interest rates appear to be on the rise, don't wait too long.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com.