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 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.
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
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Source: Bankrate.com 2014