Mortgage closing costs increase in 2013
Hawaii is the most expensive state for mortgage fees at closing.
Hawaii has the highest average closing costs in the country. // © Ann Cecil/Getty Images
The average fees that mortgage lenders charge consumers to close on a home loan have increased in the past year in most states, according to Bankrate's annual closing-cost survey.
A homebuyer getting a $200,000 loan pays an average of about $2,400 in origination and third-party fees, such as the appraisal, according to this year's survey. That's a 6% jump from 2012, when the same fees averaged about $2,264.
Most of the increase is tied to fees paid directly to the loan originator. Excluding third-party costs, origination fees alone were up about 8.4% compared to last year. (Bing: How low are interest rates this week?)
Why are fees up?
The low-mortgage-rate environment has played a role in the rise of closing costs in the past year, says Anthony Sanders, professor of real estate and finance at George Mason University. As historically low rates attracted large waves of refinancers, lenders didn't have to compete as much for business, Sanders says.
The increased demand for loans has allowed lenders to charge higher fees while they can, he says.
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"Banks realize that rates are going to go up and are trying to capture fees early on," he says. "They know when rates go up, loan applications plunge, so they are trying to generate more earnings on anticipation of lower application volume and lower profits."
As rates climb and fewer homeowners can save money by refinancing their mortgages, loan originators will likely reduce origination fees to attract more borrowers, he says.
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"They will have to lower the closing costs where it's possible to attract more business," Sanders says.
New rules cost banks
Many lenders say closing costs have increased partly because lenders have been facing higher expenses to implement a series of new Consumer Financial Protection Bureau mortgage regulations. Many of these rules go into effect next year, but lenders are gearing up for compliance in advance.
"The cost of compliance is enormous," says Anders Hostelley, chief production officer at Honolulu HomeLoans. "As a mortgage banker, we are having to staff up. We just hired another compliance person recently."
Hawaii is most expensive state
Hawaii had the highest closing costs among states in the 2013 survey, with $2,919 in fees. It had the second-highest lender fees and the highest third-party fees.
Closing costs are so expensive in Hawaii partly because of the limited supply of mortgage professionals and third-party vendors such as appraisers on the islands, Hostelley says.
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"We are always looking at our competitors, trying to recruit someone away, and that drives up the average cost per loan," he says. Training new professionals or recruiting them from out of state is an option, but the costs aren't necessarily lower, he says.
"The average salary that we have to pay is still pretty high compared to what we would have to pay on the mainland," he says.
Hawaii, whose population is about half that of Chicago, has a 4.7% unemployment rate — well below the national average.
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Alaska was the second-most-expensive state for closing costs this year, followed by South Carolina and California, which has the highest origination fees in the nation. The survey does not include title insurance, escrow and local taxes.
The least expensive states to get a mortgage were Wisconsin, Missouri and Kansas.
Shop for lower closing costs
It's unlikely that you will move to Wisconsin to pay low closing costs, but you can shop around and compare fees from different loan originators to make sure you get the best deal in your area.
When applying for a loan, homebuyers should make sure the lender gives them a form called the good-faith estimate, Alex Jacobs, executive vice president and national production manager for SunTrust Mortgage.
The government-mandated form gives borrowers an itemized summary of the loan terms, including origination fees, which are the fees paid to the lender to originate the loan.
"The good-faith estimate is probably the best way to compare costs," Jacobs says. "All lenders are required to provide that to the borrower."
Some lenders may offer lower closing costs but charge a higher interest rate — and vice versa. One useful tool to compare apples to apples is to look at the annual percentage rate on the form. The APR incorporates closing costs into the interest rate you are quoted to show you the annual cost of the loan, Jacobs says.
"I encourage consumers to look closely at their good-faith estimate," he says.
Trying to sell my Beautiful home in Florida just can't understand why I have to pay to sell it! that's ridiculous!
If you don't want a mortgage become a renter, Let the landlord take your money and you get nothing in return. People in the industry work long hard hours and provide a great service, and probably make less that the local plumber. The government is taking your money not the banks or brokers. People want everything instantly, and cry when they have to pay for it. Oh by the way if you can buy a house with less that 20% down the risk factor to lenders go up. I see young people in my neighborhood with two cars, two kids and probably two mortgages on the home. There life has to be totally stressed out. I hope they can survive because their kids deserve a loving home and not a broken family. The banker and broker can be your best gateway to financial success if you live within your budget. I am neither one but I use both all of the time, I am a real estate investor and I would never loan money to someone to buy a house. It takes about two years to get to foreclosure but I can get an eviction in about 30 days. The American dream is a journey not a sprint.
I believe that banking institutions are more dangerous to our liberties than standing armies.
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.
The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
we are trying to sell our home. actually had an offer, but the potential buyer wanted us to pay all the closing ($5K)
we refused, they withdrew. they would not accept a counter offer of splitting and the bank would not give them any more money.
so in addition to the banks charging more to obtain a mortgage, they have tightened the strings so tight, it is extremely difficult to get a mortgage.
If it isn't rising interest rates, it's loan origination, if it's not loan origination it's appraisal fees, if it's not appraisal fees, it's floating interest rates....
Bank change their hats according to what lines their pockets at that particular period.
Quit thinking the bank is your friend. They want your $$$.....what kind of friend is that?
Deal with them as you would deal with your Brother-in-Law, (the slimy one) with open eyes.
it's all B.S.! The banks see an increase in activity and decide to profit more. With todays technology, the closing cost should be half of what they use to be. You have computers doing the work saving hours of labor when it was all done by hand.
Maybe our grandparents were right about hiding money and putting it in the bank.
the poor banks, not making enough money off of us and now they fee us to death. Once upon a time there was no closing costs such as these above. The bank absorbed these as a cost of doing business. Now all the costs of doing business is passed onto the consumer. Hey we have no problem paying the piper. So we will keep on paying and they still make huge profits. Got to pay the CEO of course.