Finance Blog
Mortgage Closing Costs Fall as Consumers Save
Right now, for homeowners who are looking to refinance and homebuyers taking out a purchase mortgage, there’s a lot of good news when it comes to closing costs. Closing costs have fallen this year almost as much as they rose last year, though they can vary dramatically depending upon where you live. Plus, if you’re willing to put in a little legwork, you can save even more.
Closing costs include the fees and expenses lenders charge to originate your loan, such as the application fee, the rate lock fee, and origination points. Additionally, closing costs include third-party fees covering services and expenses charged by other vendors that are necessary to complete the lending process, like title insurance, appraisals, credit reports, taxes and transfer fees paid to local governments, and inspections.
The average cost to close on a $200,000 mortgage in the United States dropped 7 percent over the past year, to $3,754, according to Bankrate.com’s eighth annual closing costs survey. Title insurance and other third-party fees fell 12 percent from 2011, while origination fees edged down 1 percent. Closing costs work out to a little less than 2 percent of a mortgage—considerably less than the 5 percent often cited as a standard.
Because of state laws, local practices, and local costs for services, closing costs vary widely by state. New York has ranked the highest in recent years, with an average of $5,435. The next most expensive states are Texas, Pennsylvania, Florida, and Oklahoma. The least expensive state was Missouri ($3,006 on average), which was joined by Kansas, Colorado, Iowa, and Arkansas among the five cheapest states.
Last year, however, the average closing cost in Bankrate’s survey rose 8.8 percent over 2010, when it was $4,070 on a $200,000 loan. A big factor in this change was higher charges by lenders. On average, lenders charged about $1,614 in origination fees last year, up 10.3 percent from 2010. 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 percent from 2010.
Controlling closing costs with a good faith estimate
Consumers have a new secret weapon they can use to control closing costs, though most don’t take advantage of it. It’s called a good faith estimate, or GFE. Under law, all lenders are now required to provide a GFE when your loan application is accepted. The GFE includes accurate estimates of the costs the lender will charge as well as estimates of third-party costs that must be within 10 percent of what you finally pay.
Most consumers use the GFE simply to prepare for what they will need at closing, but you don’t have to stop there. Smart consumers use the GFE to shop around for lenders and for third-party service providers to see if they can do better. You can save hundreds, even thousands, with a little legwork on the Internet. Title insurance costs and escrow costs, for example, can vary by $500 or more each.
Consumers should shop around for at least three different estimates. While no one is going to move to a new state just because closing costs are lower, it’s important for people to realize that there is variation even within their neighborhood—and that they can save by being an educated consumer.
Saving a little on closing costs can mean a lot when you are facing a down payment on top of moving and decorating expenses. Closing costs require hard cash at closing in addition to your down payment, but it’s possible to finance them through your lender.
Today, many lenders offer a no-closing-cost loan where the lender pays your settlement costs for you, but be aware that you may end up paying a lot more over the life of the loan than you would at closing. If you choose this option, you will be taking out a higher loan amount, which could negatively affect your loan-to-value ratio and result in a dramatically higher interest rate. Some lenders may cover all costs, while others may still charge you for certain third-party fees such as appraisal, inspection, title, escrow, and even mortgage points.
Steve Cook is Executive Vice President of Reecon Advisors and covers government and industry news for the Reecon Advisory Report.
Cook is a member of the National Press Club, the Public Relations Society of America and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. He is a graduate of the University of Chicago, where he was editor of the student newspaper. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate and financial services companies, and trade associations, including some of the leading companies in online residential real estate.
8 comments
Leave a Comment
We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.
Some other factors to consider when commenting:
- Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
- All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
- We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
- Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
- Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
- Stay on topic. Your comment should be concise and pertain to the specific post in question.
- Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
- Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.
RSS Feeds
It is very difficult to compare closing costs. I have found most lenders require a credit check up front before giving you a GFE but every credit check they do is a ding against your FICO score! Basically you are punished for trying to be a good consumer as it lowers the rating (FICO) therefore RAISES your interest rate. So all that work and you end up losing anyway!
I agree. The new Consumer Protection agency needs to get involved in this!
My sentiments exactly.
I am struggling not to become homeless. I have a purchase agreement. I go on line and there are different credit rates that will qualify you for a FHA loan. Purchasing a home is turning in not how you know but who you know.
I agree, I’ve been trying to get a mortgage since May. The mortgage company ran my credit often, then said they may not be able to approve a mortgage at that time, they told me if I’m not happy to find another lender, however I could not since my credit score had been significantly impacted by all of their inquiries
JP, Shopping around for the best mortgage is important when you’re buying a home. Most credit scores are not affected by multiple inquiries if they’re in a short period of time and for the same type and amount. Read this blog for more information http://blog.equifax.com/credit/will-interest-rate-shopping-hurt-my-credit-score/ Thanks for asking, it’s a great question.
HOW CAN I GET OUT OF MY REVERSE MORTGAGE AND GET A CONVENTIONAL LOAN ?
what’s is the minimum score to purchase a home or a property.