Buying a home may be cheaper these days, but the cost of closing on a mortgage has increased in most states.
Nationwide, the average origination and title fees on a $200,000 purchase mortgage totaled $4,070, according to Bankrate's annual survey of closing costs. That's an 8.8 percent jump compared to 2010 when the average closing costs totaled $3,741.
For the second year in a row, the states with the highest closing costs are New York, where costs average $6,183; Texas at $4,944; followed by Utah with $4,906. Next was California, where average closing costs in San Francisco totaled $4,832. New York and Texas have dominated the top spots for five years.
The cheapest places to get a mortgage are Arkansas, North Carolina and Indiana. In each of these states, the average closing costs are close to $3,400.
What exactly has gone up?
Most of the jump in closing costs is tied to fees charged directly by lenders.
On average, lenders charged about $1,614 in origination fees this year, up 10.3 percent from last year. 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.
While some third-party fees rose, title insurance premiums changed little compared to last year. The survey excludes property taxes, homeowners insurance and recording fees.
Why are fees rising?
Many lenders and mortgage professionals claim that origination fees have increased because of stricter mortgage regulations that the government has implemented in the last two years.
"New regulations require more staffing and cost more money," says Jason Auerbach, division manager of First Choice Loan Services in New York City.
Auerbach says some of the "new" regulations -- which vary from having to take extra steps to verify a borrower's income and employment to disclosure forms and licensing-related matters -- have been in place for a couple of years already, but the mortgage industry takes them more seriously now. New forms and regulations that are still in discussion are influencing lenders already.
"Banks are self-regulating," Auerbach says. "They want to make sure there is nothing in that loan that is going to make Fannie and Freddie uncomfortable."
Fannie Mae and Freddie Mac buy most mortgages and have almost no tolerance for missing documents or errors in paperwork.
Neil Garfinkel, a New York real estate attorney with AGMB Law, says he has noticed firsthand the increased caution, as he has been retained to help several smaller banks seeking counseling related to mortgage compliance issues.
"It does cost them more, and I'm sure the costs have to be passed on to the consumer," Garfinkel says.
Paying more for fair loans?
The argument that increased regulation makes loans more expensive has long been used by the lending industry against new, more stringent rules.
While new rules may cost the lenders more money, it's difficult to determine how much of the added costs are really a result of regulatory changes, says Barry Zigas, director of housing policy for the Consumer Federation of America.
"It's ironic to hear that the consumer has to pay more to get a fair product," Zigas says. "But if it means the mortgage they are getting is more likely to be tailored to their needs, they should be happy to pay."
Compare and negotiate lender's fees
That doesn't mean you have to pay whatever your mortgage lender feels like charging you.
Some of the fees included in your closing costs, such as appraisals and credit reports, aren't really negotiable. But you can shop around and negotiate lender fees. In some states you can negotiate title insurance costs.
Origination fees vary substantially from lender to lender, says Diane Saatchi, senior vice president of Saunders & Associates, a real estate brokerage in Bridgehampton, N.Y.
Bankrate's survey shows that if you are getting a $200,000 mortgage in New York, for example, you may be charged anywhere from the $700s to more than $4,000 in origination fees depending on which lender you choose.
That's why it's important to compare good faith estimates, or GFEs, from at least three banks and three mortgage brokers, Saatchi says. Borrowers are entitled to get a GFE form, which includes a breakdown of estimated closing costs, within three business days after submitting a mortgage application.
Shopping for title insurance
The GFE form includes an estimate for title insurance, but you can shop around. Will the savings be worth your time? It depends on where you live. Some states set or regulate title insurance premiums. In other states the charges vary.
In Bankrate's survey, the average title insurance premium nationwide is $1,653. North Carolina is one of the cheapest places to buy title insurance with an average cost of $993. In comparison, the average title insurance premium in the New York, for the same home value and mortgage amount, is $2,811.
Joseph Eaton, co-author of the 2007 book "The American Title Insurance Industry: How a Cartel Fleeces the American Consumer," has studied the title industry for more than a decade. He says that if consumers were able to shop for title insurance outside of their states and the rates weren't fixed in some states, borrowers wouldn't have to pay as much.
"I've asked the question to insurance commissions in some states on why their (title) costs are so much higher than in neighboring states, and the answer is, 'We don't compare states,'" he says.
Even if you live in a state where fees and premiums for title services are regulated, it never hurts to do your homework and compare to make sure you are being charged the standard rate.
"We encourage contacting several title companies and asking questions," says Jeremy Yohe, spokesman for the American Land Title Association. "Cost shouldn't be the only consideration."
Bankrate conducts the closing costs survey by obtaining online good faith estimates for a $200,000 mortgage in a major city in each state, plus Washington, D.C. In California, San Francisco and Los Angeles are surveyed. The estimates are based on a borrower with excellent credit buying a $250,000 home.
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