2011 closing costs survey: Which states have the highest, the lowest?
Buying a home may be cheaper these days, but the cost of closing on a mortgage has increased in most states.
© Lars Ruecker/Flickr/Getty Images
Nationwide, the average origination and title fees on a $200,000 purchase mortgage totaled $4,070, according to Bankrate's annual survey of closing costs. That's an 8.8% jump compared with 2010, when the average closing costs totaled $3,741.
For the second year in a row, the states with the highest closing costs are New York, where costs average $6,183; Texas at $4,944; followed by Utah with $4,906. Next was California, where average closing costs in San Francisco totaled $4,832. New York and Texas have dominated the top spots for five years. (Do you think closing costs are too high? Tell us on Facebook)
The cheapest places to get a mortgage are Arkansas, North Carolina and Indiana. In each of these states, the average closing costs are close to $3,400.
What exactly has gone up?
Most of the jump in closing costs is tied to fees charged directly by lenders.
On average, lenders charged about $1,614 in origination fees this year, up 10.3 % from last year. Origination fees include lender charges for services such as underwriting and processing.
Fees imposed by third parties, including title, appraisal, postage/courier and survey charges, averaged $2,456, up 7.9% from 2010.
While some third-party fees rose, title-insurance premiums changed little compared with last year. The survey excludes property taxes, homeowners insurance and recording fees.
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Why are fees rising?
Many lenders and mortgage professionals claim that origination fees have increased because of stricter mortgage regulations that the government has implemented in the last two years.
"New regulations require more staffing and cost more money," says Jason Auerbach, division manager of First Choice Loan Services in New York City.
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Auerbach says some of the "new" regulations — which vary from having to take extra steps to verify a borrower's income and employment to disclosure forms and licensing-related matters — have been in place for a couple of years already, but the mortgage industry takes them more seriously now. New forms and regulations that are still in discussion are influencing lenders already.
"Banks are self-regulating," Auerbach says. "They want to make sure there is nothing in that loan that is going to make Fannie and Freddie uncomfortable."
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Neil Garfinkel, a New York real-estate attorney with AGMB Law, says he has noticed firsthand the increased caution, as he has been retained to help several smaller banks seeking counseling related to mortgage compliance issues.
"It does cost them more, and I'm sure the costs have to be passed on to the consumer," Garfinkel says.
Paying more for fair loans?
The argument that increased regulation makes loans more expensive has long been used by the lending industry against new, more stringent rules.
While new rules may cost the lenders more money, it's difficult to determine how much of the added costs are really a result of regulatory changes, says Barry Zigas, director of housing policy for the Consumer Federation of America.
"It's ironic to hear that the consumer has to pay more to get a fair product," Zigas says. "But if it means the mortgage they are getting is more likely to be tailored to their needs, they should be happy to pay."
Compare and negotiate lender's fees
That doesn't mean you have to pay whatever your mortgage lender feels like charging you.
Some of the fees included in your closing costs, such as appraisals and credit reports, aren't really negotiable. But you can shop around and negotiate lender fees. In some states you can negotiate title insurance costs.
Origination fees vary substantially from lender to lender, says Diane Saatchi, senior vice president of Saunders & Associates, a real estate brokerage in Bridgehampton, N.Y.
Bankrate's survey shows that if you are getting a $200,000 mortgage in New York, for example, you may be charged anywhere from the $700s to more than $4,000 in origination fees depending on which lender you choose.
That's why it's important to compare good faith estimates, or GFEs, from at least three banks and three mortgage brokers, Saatchi says. Borrowers are entitled to get a GFE form, which includes a breakdown of estimated closing costs, within three business days after submitting a mortgage application.
Shopping for title insurance
The GFE form includes an estimate for title insurance, but you can shop around. Will the savings be worth your time? It depends on where you live. Some states set or regulate title insurance premiums. In other states the charges vary.
In Bankrate's survey, the average title-insurance premium nationwide is $1,653. North Carolina is one of the cheapest places to buy title insurance with an average cost of $993. In comparison, the average title insurance premium in the New York, for the same home value and mortgage amount, is $2,811.
Joseph Eaton, co-author of the 2007 book "The American Title Insurance Industry: How a Cartel Fleeces the American Consumer," has studied the title industry for more than a decade. He says that if consumers were able to shop for title insurance outside of their states and the rates weren't fixed in some states, borrowers wouldn't have to pay as much.
"I've asked the question to insurance commissions in some states on why their (title) costs are so much higher than in neighboring states, and the answer is, 'We don't compare states,'" he says.
Even if you live in a state where fees and premiums for title services are regulated, it never hurts to do your homework and compare to make sure you are being charged the standard rate.
"We encourage contacting several title companies and asking questions," says Jeremy Yohe, spokesman for the American Land Title Association. "Cost shouldn't be the only consideration."
nothing is free... if your bank is telling they are paying everything even the appraisal.. then something is not right and i would look for another bank!
Banks are out there to make money not give it away. and they make it off of us!
if you look close at the loan documents then you will find hidden in them the fees for all of those that were ( PAID BY YOUR BANK) you do not see any oh dear you over looked the extra 1.5 to 2% or more in interest they are charging you.
and spread this out over the 30 year loan and you will pay much much more in interest than you would have to just pay the fees!
I have been in the industry even longer than concerned and I pretty much agree with him. Let me elaborate, however.
For a number of years we lent $ to people who really did not "deserve" to own a home. They lacked down payment money and also had questionable credit/income.
We were the middlemen and Uncle Sam was the entity dictating these people worthy. They were first to falter and have exacerbated the problem.
Now, Uncle Sam has added stringent new rules. Most of them are stupid and do not address potential problems or add to the viability of the loan pool. They have, however, driven up our compliance costs considerably and forced many lenders out of the industry. Many of those lenders were solid and reputable.
My company has seen competition evaporate and processing costs increase and potential liability costs increase. We have substantially increased our closing costs because of this. How the regulations benefit the consumer I do not know. They have driven up costs dramatically.
There are a number of things which could be done to expedite the loan process, alleviate paperwork, and enhance the viability of the loan pool(s). A lot of us know them but have not been asked. People who have never been in business or involved at the "street level" are writing rules for different industries. It is a travesty.
Government regulations be damned. On a loan of $84000 with Country Place Mortgage in Texas, here are a few of the charges included in $6193 in closing costs. $200 for NOT using an escrow for insurance and taxes. $600 appraisal fee, the appraisal, of course, was exactly the same as the agreed upon selling price. $450 processing fee. $125 document preparation fee. The list goes on and on. Then I was required to insure the home for almost double the replacement value of the manufactured home. When the list of scam artists comes up, guess who would top my list
Concerned in MN. So I guess if we don't have Government Regulations all costs will go down?
Look how well we did when the industry didn't have as many reg's, and folks didn't follow the ones that were there.
Regulations are an attempt to not repeat what happened before the crash. You can be critical of Government but we hope they will be able to keep some of the rip off lending practices that we had before the crash. If folks were ALL Honest we wouldn't need regulations. I don't see that happening anytime soon. The word for all of this is Greed.
A BUNCH OF B.S.,,,,WHO R THEY KIDDING, they see an excuse to raise fees and their doing it ,
banks,mortgage companies anyone that deals with the average [joe] is ripping them off,if ur credit is bad ---up goes ur rate on a credit card, and if u get a mortgage-expect to pay a high interest rates !!!!
keep it up and in another 20 yrs their will be riots in the streets and it won be terrorists,it be the american people that
take up arms aginst their own govt.--its really getting crazy-----now they want to take away social security???
need i say anymore??????????????/
First, let me start out by saying I've been in the mortgage industry for 19 years. That being said, I'm going to be biased to some degree. Costs for mortgages have increased for many reasons. Most come down to government regulation. I would like the author of this article to name an industry whose costs to the consumer have not been affected by additional government intervention. Each time a new government requirement is added, someone has to pay for it. That someone, in every case, will be the consumer. I've been originating mortgages for 19 years and the cost of producing a loan has never been higher for a lender. In addition to the increased transactional costs, there is more risk to the originating lender than in the past. Therefore, the lender has to hold more money in reserve to cover the additional risks involved. Long answer short, the increased costs to the consumer are due to increased government involvement.