As mortgage closing costs drop, you’d better shop around
The average total cost a borrower pays to close on a home loan has dropped slightly, an exclusive Bankrate.com survey finds.
Bankrate’s 2015 survey of closing costs shows that closing costs fell 7.1 percent year over year — to $1,847 in 2015 from $1,989 in 2014.
About the survey
Bankrate requested good faith estimates from up to 10 lenders in a populous city in each state and Washington, D.C., for a $200,000 mortgage. The hypothetical loan was to buy a single-family home for a borrower with excellent credit and a 20 percent down payment. The averages comprise origination fees charged by lenders, plus third-party costs such as appraisal and inspection services. Some highly variable costs were excluded — homeowners insurance and other prepaids, discount points, title insurance and taxes — so your final charges on closing day likely will be higher than the averages found in the survey results.
It’s gonna cost more, though
Variable costs could add up to another $2,500 or $3,000, depending on where you live, says Michael Becker, branch manager for Sierra Pacific Mortgage in White Marsh, Md.
In this year’s survey, average third-party fees rose nearly 22 percent, while average origination fees fell about 22 percent. What could explain why these average fees went in opposite directions?
“I can only speculate, but my best guess is that third-party fees went up because of inflation and an increase in the cost of providing those services,” Becker says. “Origination fees probably dropped because of a drop in mortgage rates.”
Borrowers today are paying less to get a better rate compared with 2014, he adds.
Industry braces for new documents
The mortgage lending process is getting a makeover soon, which is intended to change, in the borrower’s favor, the path to homeownership. The “Know Before You Owe” changes also will affect mortgage closings.
As part of the Dodd-Frank Act, the Consumer Financial Protection Bureau, or CFPB, has combined the four forms that borrowers get during the application and closing processes into two simpler documents.
New documents for homebuyers
Loan Estimate
• Replaces Good Faith Estimate and Truth in Lending Act (TILA) statements.
• Given to borrower within three business days of home loan application.
• Lists estimated costs associated with mortgage.
• Easier to compare multiple mortgage quotes.
Closing Disclosure
• Replaces the HUD-1 and final TILA statements.
• Sent to borrower three days before closing.
• Provides details about mortgage terms.
• Lists what is expected of the borrower at the closing table.
The new forms were slated to take effect Aug. 1, but the CFPB has delayed them until Oct. 3.
Compliance costs trickle down to borrowers
Regulations limit the amounts that lenders can charge above the numbers quoted in the estimates.
“Lenders cannot impose new or higher fees on the final loan unless there is a legitimate reason,” reads a release on the CFPB website.
The costs of regulatory compliance are higher than ever, says Pava Leyrer, chief operating officer at Northern Mortgage Services in Grandville, Mich. Those costs are passed on to borrowers. The uptick isn’t likely to slow down anytime soon; industry leaders have warned that mortgage lending and its associated costs will continue to increase.
Title insurance costs are rising, too.
“For the most part, our borrowers, on a purchase, are going to see a pretty hefty increase in title insurance,” Leyrer says. “A couple hundred bucks is a lot on a loan.”
You still have options, so shop
Many borrowers aren’t aware that they can shop around for competitive closing costs, says Marietta Rodriguez, vice president of national homeownership programs at NeighborWorks America in Washington, D.C.
“They sort of let their lender or their Realtor drive how they purchase insurance or their home inspection or any other costs related (to the loan),” she says. “I think most borrowers don’t realize they have choices.”
Certain charges, such as taxes, are fixed: You can’t shop around for a better deal. Becker cautions that you should take a close look at the costs you can control.
“Make sure you’re comparing apples to apples,” he says. “Take into consideration the interest rate and the lender fees out there.”
Don’t be afraid to ask questions to fully understand what you’re paying, Leyrer advises.
“Compare the service you get, the reputation and the costs, along with the rate,” she says, “and then go with what you think will fit your needs the best after doing just a little bit of research.”
