Closing costs on a home mortgage keep ratcheting up across the country, including here in Utah.
A new survey by Bankrate.com shows that average closing costs on a $200,000 home with a 20 percent down payment in the Beehive State total $2,316, ranking the state 39th in the nation. The national average is $2,402, an increase of six percent over last year.
Most of this is due to a bump in origination fees, part of the closing costs that lenders charge to crunch the numbers. According to Bankrate, origination fees in Utah rose from $1,542 last year to $1,663. That’s in part because of new regulatory mandates on loan officers and lenders, says George Andersen, branch manager of Mortgage Financial Group in Sandy.
“There’s a lot of new compliance requirements set forth in Dodd-Frank [federal mortgage reform legislation] that have been phasing in, including disclosure requirements and third-party appraisal management companies,” Andersen says. “The cost of complying has to be passed on to the consumer.”
Laurie Christiansen, president of the Utah Association of Mortgage Professionals, agrees.
“You’ve got extra fees so that means a higher cost to the borrower,” she says.
The recent rise in interest rates, she says, is causing a drop in refinancings, which in turn is making the mortgage landscape more competitive. That could be good for Utah homebuyers in the near term; closing costs could ease a bit in the next few months because of the increased competition.
But all this could change in January, when final federal requirements proposed by the Consumer Financial Protection Bureau are put in place, Christiansen says.
“Everything is really kind of goofy right now,” she says. “In January, it will be a whole new ballgame again.”
Can consumers negotiate on closing costs?
You can try, but most of the charges are set in stone, says David Luna, president of Mortgage Educators and Compliance, a Utah professional training company.
“Title insurance is what it is, taxes are what they are, rates for loan officer compensation are fixed,” he says. “Everything else is pretty much set.”
A note on the Bankrate survey: Utah’s ranking has changed dramatically in recent years, with average closing costs in 2012 totaling $3,724 and $4,906 in 2011. Part of the reason for this year’s decline is the way Bankrate is calculating third-party fees, which include items such as appraisal and inspection costs. (Third-party fees along with origination fees comprise your total mortgage closing costs.) This year, they didn’t include title insurance in formulating third-party fees, says company spokesman Ted Rossman.
“After several years of doing this survey, we found that lenders aren’t nearly as good at estimating title insurance fees as they are at estimating their own origination fees and the third-party fees for services that they buy in bulk,” Rossman says. “So that’s why we removed title insurance this year.”
So keep in mind that title insurance and miscellaneous fees (such as reconveyance fees) could add on another $1,000 to the Bankrate numbers at closing.
Hawaii has the highest average closing costs at $2,919 while Wisconsin falls dead last at $2,119, according to the Bankrate survey. Why do closing costs vary from state to state? It’s likely tied to cost-of-living and various state fee requirements, Andersen said.