FOR some people, a major hurdle to homeownership is the closing costs that come on top of the required down payment. There are fees for everything from title searches to deed recordings, and if you happen to be buying in New York or New Jersey, you’ll find some of the highest costs in the country
But these fees have been easing, according to a report released last week by Bankrate.com, which found that average closing costs, including mortgage origination fees, fell 7 percent nationwide from 2011 to 2012. In New York they fell 12 percent.
Mortgage origination fees alone fell 1 percent from 2011, the report said; third-party fees like title insurance fell 12 percent.
The Bankrate report was based on a survey in June of up to 10 lenders in each state, including the District of Columbia; each of the lenders was asked to provide a good-faith estimate for a hypothetical $200,000 mortgage.
Bankrate considers add-on fees like underwriting charges part of the origination fees, which are often included in closing costs. (It excludes property taxes, homeowners’ insurance, interest and other prepaid items.) “Some lenders aggregate it all in one fee; others break it out in five or six fees,” said Greg McBride, Bankrate’s senior financial analyst, who suggests borrowers add them up and count them as one cost for obtaining a mortgage.
Mr. McBride says that with the reduction over the last year, closing costs are now where they were back in 2010. He attributed the drop to competition among mortgage lenders and more accurate estimates of third-party fees.
New York, though, still has the highest average closing costs of any state, at $5,435, compared with $3,754 nationwide and $4,075 in New Jersey, which had the seventh-highest average. Other high-cost states include Texas, Pennsylvania and Florida, while Missouri, at $3,006, was the least costly, according to Bankrate.
Consumers could reduce borrowing costs even further with some smart shopping.
“You really have to understand the full picture,” said Rick Allen, the chief operating officer of MortgageMarvel.com, a mortgage shopping site. If you don’t know what a fee covers, ask about it, he said, then challenge the lender to lower or eliminate it. “With the interest rate and lenders’ fees, there’s room to negotiate,” he added, especially if there’s a second lender lined up.
Of course, some fees can’t change. There are three categories: fees that must remain as disclosed in a good-faith estimate; fees that can increase by up to 10 percent; and fees with no change limit. There are no federal rules, however, on how far down fees can be negotiated by the borrower.
In January 2010, the Department of Housing and Urban Development ruled that the 10 percent limit applies to title insurance, and other required services like appraisals or surveys, provided borrowers use one of the companies recommended by their lenders. (If you shop beyond their small circle of companies, the fees could go up more, according to HUD.)
Lender origination fees are required to remain as disclosed in the good-faith estimate. And if costs for a lender-recommended service go up more than 10 percent, the lender is supposed to issue a new good-faith estimate and disclose the increase, Mr. McBride said.
Title insurance is the biggest cost, averaging around 1 percent of the loan balance. Mr. McBride suggested that borrowers shop around, eliciting good-faith estimates from a number of lenders.
In New York, title insurance fees are set by the state, so the rates should be nearly the same no matter who the lender is, said Rafael Castellanos, the managing partner of the Expert Title Insurance Agency in Manhattan.
Borrowers should ask about the cost of “departmental searches,” which check for things like certificate of occupancy, and whether there is a local fire department or sidewalks. In New York City, a departmental search should cost around $325, he said.
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