Regulations, shopping around help push mortgage closing costs down

closingcosts

Critics complain about too much regulatory control over the mortgage industry, but new rules are paying off for consumers who have to shell out closing costs.

The average cost to close on a mortgage dropped seven percent over the past year to $3,754 on a $200,000 mortgage, according to research by Bankrate.com.

That’s an average savings of $300 in total fees charged by lenders (application fees, credit check fees, underwriting fees, processing fees etc.), as well as third-party fees for services such as appraisals and title insurance.

Credit new, stiffer disclosure regulations in place now, and even better disclosures in the pipeline, for getting lenders to tow the line on closing costs.

Required by the Dodd-Frank Act to update the Truth in Lending Act’s (TILA) loan cost disclosures and the Real Estate Settlement Procedures Act’s (RESPA) “Good Faith Estimate” and HUD-1 Settlement Statement disclosure, the Consumer Financial Protection Bureau (CFPB) recently proposed two documents that reduce both paperwork and consumer confusion – “The Loan Estimate” and “The Closing Disclosure.”

This comes even after, effective January 1, 2010, new regulations enhanced the Good Faith Estimate (GFE) and HUD-1 closing documents with shopping around charts and worksheets.

Unfortunately, the new-and-improved forms fell below expectations. A year after their release, 70 percent of homeowners chose a mortgage provider without shopping around, according to a study released earlier this year by online direct bank, ING Direct.

“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, Bankrate.com’s senior financial analyst.

Bankrate reported New York State had the nation’s most expensive average closing costs – $5,435, followed by Texas, Pennsylvania, Florida and Oklahoma. The least expensive state was Missouri with an average $3,006 in closing costs. At the least expensive end, the Show Me State was followed by Kansas, Colorado, Iowa and Arkansas.

“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,” McBride added.

Bankrate’s survey included 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 20 percent down payment.

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