Home prices and mortgage rates aren’t the only costs on the rise when it comes to buying a house these days. Expect higher closings costs as well, according to a new study by Bankrate.com.
Bankrate found the national average closing cost, including origination plus third-party fees, is $2,402, up 6 percent from last year. Washington state was among the cheapest, with an average cost of $2,208.
Lenders appear to be boosting fees before the rise in mortgage rates turns off borrowers and makes it harder for lenders to attract new customers, a George Mason University real-estate and finance expert told Bankrate.
“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,” Anthony Sanders said.
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Lenders say the increased costs reflect more federal regulation from the Consumer Financial Protection Bureau.
Bankrate looked at origination and third-party fees. Origination fees include items such as points, a calculation used to compensate loan officers; and payments for the loan application, other document preparation, loan processing and broker or originator fees. Third-party fees include payments for such items as the appraisal, closing attorney, inspections and surveys.
Bankrate, however, said that not all lenders include all of the fees, and actual closing costs are probably much higher because its analysis did not account for the most highly variable costs, such as title insurance, title search, taxes and other government fees and escrow fees.
Bankrate asked up to 10 lenders in each state plus Washington, D.C., to provide good-faith estimates for a $200,000 mortgage loan on a single-family house in a state’s largest city, and for a borrower with excellent credit who was putting up 20 percent in for a down payment. Banks are required to disclose all fees on the good-faith estimate.
Nationally, Hawaii had the highest average closing costs ($2,919), followed by Alaska ($2,675), South Carolina ($2,658), California ($2,639) and New Mexico ($2,566). Such costs were cheapest in Wisconsin ($2,119), Missouri ($2,188), Kansas ($2,193), Michigan ($2,203) and Washington state’s $2,208, where the average lender-origination fee was $1,603 and third-party fees $605 for a $200,000 mortgage.
The rise in closing costs mirrors similar increases in home prices and mortgage rates.
Experts advise homebuyers to shop around for the best rates and closing fees, and get a good-faith estimate, which will allow consumers to see all fees associated with the loan.