The average cost to close on a $200,000 mortgage in the United States is $3,754, according to Bankrate's annual survey of closing costs. That includes fees charged by the lender such as origination fees, processing fees and third-party fees such as title insurance.
For the third year in a row, the state with the highest closing costs is New York, where borrowers pay an average of $5,435 to obtain a mortgage. Missouri, where they pay an average of $3,006, ranks as the state with the lowest closing costs.
These closing fees can vary significantly from lender to lender, even when costs are compared in the same city, the survey shows. Don't be surprised if one lender charges you $2,000 to originate your loan and another offers you the same loan for $1,000.
"It's a competitive market," says Rick Harper, senior vice president at the nonprofit Consumer Credit Counseling Service of San Francisco. "One lender may cut its fees slightly to increase originations. So for a time being, that may be the lowest guy out there."
Comparing closing costs
It's crucial that borrowers compare closing costs and not just the interest rate on the mortgage, Harper says. But comparing apples to apples isn't as simple as it should be when it comes to shopping for a mortgage. Lenders have different names for the fees they charge, and the fees can vary depending on the interest rate and other loan terms.
"This is one of the processes that make it so frustrating for consumers," Harper says. "They may reduce the closing costs and increase the interest rate, or reduce the interest rate and increase the closing costs."
Some of the fees charged directly by lenders include: application fees, processing fees, underwriting fees, origination fees and document-preparation fees. Some lenders charge one or two of these fees. Others charge all of them.
"That's why it's important to talk to more than one lender," says Jason Auerbach, division manager of First Choice Loan Services in New York City. "It's like shopping for a car. Very few people will walk into the first car dealer and say, 'How much is it? Great, I'll take it.'"
Not all fees charged at closing are negotiable, including third-party fees such as appraisal fees.
"The bank will dictate the appraisal firm they wish to use," says Timothy Dwyer, founder and chief executive officer of Entitle Direct Group. "But you can ask the lender upfront for the appraisal fee."
All lender closing fees should be noted on the Good Faith Estimate form that lenders are required to provide borrowers within 72 hours after they apply for a loan. The GFE is a consumer's best comparison tool when it comes to shopping for the best mortgage deal, Auerbach says.
"But you can't just shop for closing costs," he says. "You need to make sure you understand the whole picture."
Shopping for title insurance
A big chunk of your closing costs include title insurance and title services charges. Bankrate's survey shows the average cost for title insurance and third party services is $2,159.
Borrowers can choose their own title insurance and shop for the best price. Title insurance premiums often don't vary much within the same state, as many states have a set rate. But shopping around can still pay off because settlement services and the title service fees associated with the purchase of the title insurance are not regulated and can vary.
"Yes, it's worth shopping for title insurance," Dwyer says.