3.5% 30 Year Fixed No Closing Cost Refinance

We finally closed this week on our 3.5% 30 year fixed refinance with no closing costs (no closing costs = a credit from lender/broker large enough to offset refinance costs). It took us over 2 months (67 days from initial application/paperwork submitted) to close on this refinance, and there were times I really didn't think it was going to happen.

House Appraisal Came back Significantly Lower Than Expected
The first obstacle we ran into was a surprisingly low appraisal estimate. The estimate was so low that our mortgage balance far exceeded the 80% LTV threshold. We appealed the appraisal in hopes that we could nudge the appraisal value upwards a bit, but in the end no appraisal adjustment was made. As a result we looked at our options including PMI as well as a piggyback loan and in the end decided that we would deploy $31k of our savings to paydown the loan balance so we could move forward with the refinance.

The Lender was Incredibly Slow at Processing the Loan
It took over 2 weeks to hear anything back from the lender from the application/submitted documentation, when they initially asked for additional information. It then took an additional 2 weeks to hear back and have them begin to ask about some of the finer details which took another week of back and forth to make sure all the questions were answered, etc. Given where rates are I am not surprised that lenders are bogged down by the refinance volume, but at times I was suspicious that the lender was purposefully going slow to drag out the process in hopes that we wouldn't complete the refinance.

Once the lender start processing, there was round after round of followup required:

  • Wow they actually read and more importantly understood all the documentation I supplied with my loan application. I've never gone through a loan application where the paperwork was actually reviewed in detail; previously I considered it more a formality in the process.
  • I had to make a significant investment of time in explaining our family finances, accounts, and transactions.
  • I was ask for documentation for every $500 or more deposit in our accounts for the 30 days before the loan application was submitted including photocopies of the checks I DEPOSITED into our account.
  • The lender wanted to run a title search on my rental properties to ensure there were no additional undeclared loans/leans on the rental properties, even though the mortgage was on our primary residence.

The mortgage approval process was by far significantly more stringent than any loan approval process I have been through before. I had heard mortgage lending standards were higher and it was more difficult, but I was still surprised at how much work it took to get approval.

During this process I had to get our rate lock extended 3 times. I was frustrated that I ended up having to pay ~$360 for the rate lock extensions (ie. in less credit from lender at closing).

After we closed though I'm excited that we have finally completed the refinance (4.375% loan -> 3.5% loan). It makes a sizable improvement in our free cash flow (a $299/mo reduction in required min payments) which I believe will pay dividends long term when interest rates rise. I expect we will be able to deploy the cash saved in higher returning investments in the future.


Related in Real Estate:

No Closing Cost Loan Example (Nov 29, 2012) I've gotten multiple requests to clarify the recent no closing cost refinance loan I just completed. Its a bit of a vague term and could be done different ways, but the end result is that there are no out of...

Appraisal Appeal Unsuccessful (Nov 05, 2012) Not much of a surprise, the appraiser dug in and didn't budge after we submitted our appraisal appeal: Our more favorable comparables were based on county property records. Interestingly the appraiser indicated the MLS data is generally considered more accurate...

Appeal Your Real Estate Appraisal (Oct 23, 2012) Last week I received the results of a recent appraisal of our home for a refinance. I was shocked to learn the appraised value was significantly lower than I expected. The appraiser had indicated the value of the property had...

Comments (5)


This is really good information for people going down the refi path. Would you mind explaining a little more about "no closing costs = a credit from lender/broker large enough to offset refinance costs" most of the time I see $0 closing cost mortgages to carry about .5% higher interest than those with no costs. How was the mortgage broker able to make money using this credit?

Hi Kent,

Good question - I get asked that a fair amount. I'll try to post the HUD details from closing as I think it will be easier.

In a nutshell though the broker still charges an origination charge on the loan and that is how the broker makes money. The lender provided a closing credit that offset the origination fee, appraisal, title, closing attorney, and other fees.

We had just refinanced our house from a 30 year to a 15 year. Similar to your situation, our apprasial came in much lower than expected (they claimed this is due to no resale comp in our neighborhood since it's new), so we ended up with a 95% LTV ratio! Ouch! (We put down 15% about 3 years ago). Anyway we went with it and decided we will still pay PMI, but our new PMI is lower than before, since we refi to a 15 year. We originally locked at 3.25% but a few days before closing they were able to relock based on current market rate at the time (at no cost to us), and we got a 2.875%. It took less than 45 days to complete the whole process. It's not painful at all since I had all the documentation ready and provided at a timely manner (I've been through filing citizenship so I don't think anything can be worse than that!). And the lender is very competent as well. We had to pay about $2500 closing cost and rolled in most of the tax prepaid to the new loan, which I feel we were back to where we were 3 years ago! But it's also good to get a very decent check from our escorw to add to our money market account. I am just glad to see now more money of the payment is going to the principal than the interest! (about 2/3 goes to principal vs 1/3 to interest) The best part is that since we made our mortgage payment for Sept in late August, and our house didn't close until Oct 1, we went pretty much 3 months without a mortgage payment! (Sept, Oct and Nov, new mortgage payment is being debited on Dec 1) So we ended up saving all the cash!

Looks like the refinance was for your primary residence. Was this under the HARP program?

No HARP, if I recall correctly this loan wasn't eligible since I had refinanced a couple yrs ago.

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