Thanks Jane!

Yes, you understand me and my situation….and you know Michigan’s housing market. This stinks but we’ll go back and ask more questions and check out another bank, too…we might be stuck with what we got but we’ll see!

I’m guessing she’s looking for a

lower monthly payment due to a longer amortization. Sometimes the immediate financial help is more important than the higher amount of interest paid over time. Been there, done that…

Their job is to make money

Waiving the closing costs cuts into their profit. Providing the appraisal cuts into their profit. A small town bank probably doesn’t make enough money to give away perks like that.
Rolling the closing costs INTO the loan means the loan is higher by $2500, which the house won’t support. Regardless of their fees, it sounds like thay can’t give more than about 70% Loan-to-Value(86K is about 68% of 126K). THAT is your deal-killer. I’m in a similar situation, although a bit worse because I’m underwater. My loan is an ARM with a balance of $101,500. I’d love to refi to a fixed rate, but the house is worth less than $80K. So the property won’t support the loan that I need.
In your case, you’d have to find a different bank that would support a higher LTV – you’re looking at about 90%. Problem is, such a loan would have ridiculous interest rates, so you’d essentially be right back where you started, AND be out the appraisal and closing costs…