The biggest difference is in third-party costs for appraisals and title insurance, which rose 47.2 percent. Some of that difference could be in the way lenders are quoting Good Faith Estimates (GFEs). Many include not only lender's title insurance but also buyer's title insurance, which could account for some of the increase. Also, under new rules, lenders can be penalized if the GFE is not within 10 percent of the final cost, so some lenders could be overestimating just to avoid penalties. (There are no penalties for overstating closing costs.)
"The big rise in average closing costs may scare some homebuyers, but it's important to keep things in perspective," says Greg McBride, senior financial analyst for Bankrate.com. "Increased regulation on lenders' GFEs means more accurate estimates and less expenses popping up for consumers on the back end." Prior to this change, consumers could be hit with hundreds if not thousands of dollars of unexpected charges at the closing table.
Mortgage lenders say their costs have gone up primarily because it is so much more labor-intensive to do each loan. "You're doing a full-blown audit on every file," Brian Koss of the Mortgage Network told BankRate.com. He said that in the past, just 10 percent of loans were double-checked after closing. Today, under new Fannie Mae rules called the Loan Quality Initiative, tax returns must be checked with an IRS transcript. Lenders also match Social Security numbers, conduct fraud checks and pull credit reports twice -- once at application and a second time just before closing.
how your state compared at BankRate.com, where you'll also find a detailed breakdown of the lender's origination fees and third-party fees.
Comparing New York to Arkansas, some big differences jump off the page. New York has a commitment fee of $700, which doesn't apply in Arkansas. Title search and title insurance are another major difference. In New York, the average fee for title search and title insurance is $2,925; in Arkansas, it's $1,011.
The good news is that you can shop for third-party providers if your quotes on the GFE are high. That includes a title insurance company, settlement attorney and a person to do the survey. The biggest savings are likely to come by shopping for title insurance. One place to start online is EntitleDirect.com. CEO Tim Dwyer has seen traffic pick up, he told BankRate.com. "[The number of] people shopping for title insurance has, plain and simple, increased."
BankRate's survey only includes origination and third-party fees, it does not include property taxes, recording fees, homeowner's insurance and prepaid items, such as a partial month of mortgage interest. It also doesn't include discount points. Only points related to origination are included.
Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Improving Your Credit Score" and "The 250 Questions Everyone Should Ask About Buying Foreclosures."
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