Sunday
September 21, 2014

Rising Closing Costs Pinch Buyers' Wallets

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Rising Closing Costs Pinch Buyers' Wallets

Rising home prices aren’t the only thing that may give buyers sticker shock: Mortgage closing costs have soared nearly 6 percent over the past year, according to a new survey by Bankrate.com.

The average closing cost on a $200,000 mortgage reached $2,539 nationwide in June compared to $2,402 a year prior. Closing costs were on the rise for the second year in a row. In 2013, Bankrate also had reported a 6 percent rise in closing costs.

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Why are mortgage costs on the rise? The Bankrate study mostly attributes the increase to the higher fees lenders charge to originate home loans. Such fees have risen 9 percent, while third-party fees, such as for appraisals, rose only 1 percent.

"The biggest reason [for the higher fees] is the additional regulations," says Dan Stevens, sales operation manager and vice president of National Bank of Kansas City. "The No. 1 at the moment is the qualified mortgage rule. That alone has really added additional man-hours to the mortgage approval process." The QM rule, also known as the ability-to-repay rule, took effect in January and requires lenders to verify before approving a mortgage that a borrower can afford to repay the loan.

This year, Texas had the highest closing-cost fees nationwide. Closing costs, which include origination and third-party fees, averaged $3,046 in the Lone Star State on a $200,000 mortgage. Other high-cost closing states are Alaska ($2,897); New York ($2,892); Hawaii ($2,808); and Wisconsin ($2,706), the study showed.

Meanwhile, the Bankrate.com study shows the following states have the lowest average closing costs:

  • Nevada: $2,265
  • Tennessee: $2,366
  • Missouri: $2,387
  • Ohio: $2,392
  • District of Columbia: $2,402

Source: “Closing Costs Survey: Mortgage Fees Rise,” Bankrate.com (2014); “Mortgage Closing Costs on the Rise, National Survey Says,” Los Angeles Times (Aug. 4, 2014)