Bankrate Survey Shows Mortgage Closing Costs Dropped 7 Percent Over Past Year
August 22, 2012
The average cost to close on a mortgage in the United States dropped seven percent over the past year to $3,754, according to Bankrate.com's eighth annual closing costs survey.
Title insurance and other third-party fees fell 12 percent from 2011, while origination fees edged down one percent. Bankrate's survey shows the average cost for title insurance and third party services is $2,159.
"This is the second year in which lenders are required to estimate third-party fees within 10 percent of the final cost. It seems like they're getting more accurate, which helps explain the sharp decrease in these fees over the past year," said Greg McBride, CFA, Bankrate.com's senior financial analyst. "The main lesson of this survey for consumers is to shop around for at least three different estimates. While no one is going to move to a new state just because closing costs are lower, it's important for people to realize that there is variation even within their neighborhood, and that they can save by being an educated consumer."
Bankrate surveyed up to 10 lenders in all 50 states plus the District of Columbia in June 2012. Researchers obtained online good faith estimates for a $200,000 mortgage to buy a single-family home with a 20 percent down payment. Costs include fees charged by lenders, as well as third-party fees for services such as appraisals and title insurance. The survey excludes taxes, property insurance, association fees, interest and other prepaid items.
Last year, ALTA sent a letter to Bankrate and issued a press release outlining significant problems and concerns with the study about how title insurance costs are calculated and portrayed.
ALTA encourages transparency in providing consumers costs associated with obtaining a loan, however the faulty methodology of collecting data leads to inaccurate results of the true cost of title insurance. Beyond the methodology of data collection, the way the data is presented is often misleading in terms of how the costs are categorized and labeled. The study gives the impression that title insurance rates comprise the majority of costs associated with obtaining a mortgage, while giving the appearance that lender fees comprise a small amount of fees consumers will pay to obtain a loan.
Because Bankrate's survey takes its numbers from online GFEs, it provides an inaccurate picture of the true costs homebuyers actually pay at the closing table. While this year’s report notes that title insurance fees decreased over the past year, Bankrate has some serious limits in compiling data for its study and may not help consumers understand their specific transaction.
The study misrepresents the average title insurance cost because of the five components that comprise the title insurance cost are different from state to state. In several states, the title insurance rate is considered “all-inclusive,” meaning it includes one charge for risk, search, exam, closing and escrow. In other states, there are varying degrees to what is included in the title insurance rate,
The study represents that it is an estimation of costs associated with obtaining a loan that are paid by a homebuyer at closing, when in fact many of these estimated charges are actually paid by the seller, while other fees can be negotiated on who pays. Consumers must compare actual closing costs to really find out what they actually pay and which parties provide and charge for those services.
According to the survey, New York State has the nation's most expensive closing costs at an average of $5,435. The next most expensive states are Texas, Pennsylvania, Florida and Oklahoma. The least expensive state is Missouri ($3,006 on average), which is joined by Kansas, Colorado, Iowa and Arkansas among the five cheapest states.