Originators Largely Responsible For Higher Closing Costs
It’s not enough that home prices are rising and mortgage interest rates are trending up. Closing costs are on the rise, also cutting into affordability for buyers.
Closing costs are found on the HUD-1 Settlement Sheet, along with other costs to buy a home.
Bankrate.com’s 2013 Closing Costs Survey found that, overall, closing costs rose 6 percent from last year in most states.
The survey reveals a $200,000 loan costs an average of about $2,400 in origination and third-party fees, such as an appraisal. That’s 6 percent more than last year when the fees averaged about $2,264.
Loan originators, who lost certain fees under new federal mortgage reforms, made up for some of it by grabbing most of the higher closing costs.
Reasons closing costs are up
Excluding third-party costs, origination fees alone were up about 8.4 percent compared to last year, Bankrate reported.
Lenders say the cost of implementing and complying with the new Consumer Financial Protection Bureau rules comes with a hefty cost. Most of the rules aren’t effective until January 2014, but lenders are preparing in advance so they don’t get caught in the Bureau’s web of enforcement as some already have.
Bankrate also reports lower rates were responsible for some of the increase. Lower interest rates increased demand. That allowed lenders, with reduced competition, to jack up costs while they could.
As rates and prices rise, that could change as the market gets tighter and more competitive, but for now lenders are gettin’ while the gettin’ is good.
Meanwhile, Hawaii had the most expensive closing costs at nearly $3,000. It also ranked second in most-expensive lender fees and first for third-party fees.
Hawaii’s fees are expensive because the Aloha State has a shortage of mortgage professionals (read: higher salaries) and third-party vendors, such as appraisers, Bankrate reported.
Overall, the second most expensive closing costs are in Alaska, followed by South Carolina and California, which has the highest origination fees in the nation.
Closing costs were least expensive in Wisconsin, Missouri and Kansas.
The best way to reduce costs on any purchase is to comparison shop. You can shop around for closing costs just as you shop around for interest rates.
Lenders are supposed to give mortgage applicants a Good Faith Estimate, or GFE, shortly after the application is completed.
With this form, borrowers can compare an itemized summary of the loan terms, including origination fees, closing costs and other expenses.
Watch out for smoke and mirrors. Some lenders may offer you lower closing costs, but charge you a higher interest rate and vice versa. Look at the Annual Percentage Rate (APR) form to nail down a comparison.
The APR form includes the APR, which incorporates closing costs into the interest rate quote to reveal the annual cost of the loan.
Easy Access to All Mortgage, Closing Costs
Written by Broderick Perkins
August 15, 2013
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