This year, closing costs sharply increased in many states, including Florida, based on a survey conducted by Bankrate. But Florida improved its ranking compared to other states. Last year, Florida was the third highest in closing costs. This year, it dropped to 12th, indicating that Florida has been able to control its home buying costs.
This year, the national average closing costs for a $200,000 home loan shot up to $3,741, a sharp rise of 37 percent from $2,739 in 2009. The average home loan origination fees increased by an average of 23 percent from $1,192 last year to $1,463 this year while the average third-party fees shot up by 47 percent from $1,547 to $2,277.
The closing cost computation included only loan origination fees and third-party fees and excluded real estate taxes, recording fees, prepaid mortgage interest and homeowners’ insurance premiums as these were highly variable costs.
In Florida, the average closing costs rose year-over-year from $3,368 to $3,987, a surge of 18 percent. Loan origination costs fell from $1,369 to $1,237, but the third-party fees rose substantially from $1,999 to $$2,751.
In 2009, Florida was behind top-ranking Texas and second-placer New York in average closing costs, but this year, it was behind New York, Texas, Utah, California and six other states.
This year, the top five states in total loan origination and third-party costs were:
- New York $5,623
- Texas $4,708
- Utah $4,605
- California-San Francisco $4,566
- California-Los Angeles $4,406
- Alaska $4,327
Meanwhile, the five states with the lowest origination and third-party costs were:
- Arkansas $3,007
- North Carolina $3,255
- Iowa $3,261
- Montana $3,298
- Wisconsin $3,303
There were two major reasons cited by Bankrate for the surge in closing costs. One was the imposition of penalties on lenders if they underestimate their good faith estimates. Until April this year, lenders can provide GFEs to prospective borrowers without worrying about the accuracy of their estimates. In May, however, lenders were required to provide precise computations or face penalties.
The second reason was the increase in labor cost associated to mortgage lending. With stricter underwriting standards and more laws, bank loan officers have more work to do and spend more hours to complete mortgage origination. Tax documents, credit reports, Social Security numbers are checked, double-checked and matched up against government documents.
The increase in labor costs can be seen in the rise in fees paid to mortgage brokers. According to the Mortgage Bankers Association, mortgage brokers were paid an average of $1,135 per mortgage processes in 2009, a substantial rise of 272 percent from the average in 2008.
According to analysts, it was the title insurance that increased substantially this year. Since it’s one of the most costly items among the third-party fees, it’s profitable for home buyers to comparison-shop for title insurance.