A Comparison of Nationwide Closing Costs
If you’re applying for a Florida home loan and wish to pay the lowest fees on the market, you’re out of luck - Wyoming holds this distinction. According to a recent survey by Bankrate.com of nationwide closing costs, Florida mortgages were the fifth highest in the country when it came to costs charged for a mortgage (not including taxes, other governmental fees or escrow fees):
- New York - $3,907
- Hawaii - $3,628
- Alaska - $3,620
- New Jersey - $3,362
- Florida - $3,196
To put this in perspective: if get a $180,000 mortgage on a single-family home worth at least $225,000, the average buyer in Laramie, Wyo., would pay $2,101 in origination fees, title insurance and other closing costs. The average buyer in New York City, meanwhile, would pay almost twice as much: $3,907 for the same size loan. Nationally, the average fees and title insurance totaled $2,748.
Bankrate surveyed nine to 15 lenders in each state (plus Washington, D.C.) and asked them to estimate the closing costs on a $180,000 loan to a buyer with an excellent credit history, who had made a down payment of at least 20% on a single-family home in the state’s largest city. The survey showed that:
- The biggest differences among states came from the wildly varying costs for title insurance;
- fees for settlement services and title searches accounted for much of the rest of the disparities;
- origination costs – the fees that lenders control — didn’t vary much from state to state (but they did differ from lender to lender).
Comparison shopping - Making the study work for you
Bankrate.com explained its findings more as it tried to help potential home owners. It stated you should compare mortgage offers by adding up all the origination fees and all the title insurance and settlement fees. Ignore taxes and prepaid items when comparison shopping — lenders don’t always estimate those correctly, and they’ll be roughly the same for each lender, anyway.
Keep in mind that costs differ substantially from state to state. New York claimed the highest costs for title insurance, an average of $1,451. North Carolina had the cheapest title insurance, at $439, followed by Wyoming, at $461. The national average was $756.
“Title insurance — why does it cost more here? It’s kind of hard to say,” says Rafael Castellanos, managing partner of Expert Title Insurance Agency, in New York City. His guesses include: Property is expensive in New York, the city is densely populated and homes are bought and sold frequently. All of these factors can increase a title insurer’s risk.
In Wyoming, land is wide-open, Castellanos surmises. There are fewer transactions and less opportunity for fraud. Buyers, sellers and lenders are more likely to know one another. Contrast that to Miami-Dade County, Fla., where mortgage fraud is rampant and, not coincidentally, title insurance is costly.
“And some states simply represent greater risks associated with doing business there,” says James Maher, executive vice president of the American Land Title Association, the lobbying arm of the title insurance industry. Some states, such as Arkansas and Mississippi, have a regulatory or judicial climate that’s not friendly to title insurers. Other states are riskier because of their real-estate laws or customs.
There are other reasons for price variations, Maher adds. Some places have “all-inclusive” title insurance, where the price includes not only the insurance premium, but other services such as title search, examination of title, closing and other settlement services. Other places are called “risk-only” jurisdictions, where the insurance premium is itemized separately from related services.
The bottom line is that lenders don’t control the cost of title insurance. Nor do lenders set the prices of other services provided by third parties: appraisal, attorney or settlement fees, credit reports, inspections and title searches.
Evaluating third-party fees
Some third-party fees, such as those for appraisals and credit reports, don’t vary much from state to state. But you can find big state-to-state differences in attorney, closing and settlement fees. These cover the costs of the closing the transaction, whether the signature-filled ritual is overseen by a real estate agent, title agent, escrow officer or a gaggle of lawyers. Closings are handled differently from state to state and sometimes within states.
For example, in Southern California, the process of drawing up the title and deed transfer documents starts as soon as both sides sign the purchase contract. In Northern California, that process doesn’t start until the lender approves the loan, says Carolyn Marcial, chairwoman of national affairs for the California Escrow Association.
She adds that, generally speaking, the custom in Southern California is for the seller to pay for the owner’s title insurance policy. But for Northern California, she has to consult a chart. In some counties the seller pays, and in some counties the buyer pays. In Florida, there is a similar discrepancy.
Escrow closings vs. attorney closings
Where California and low-cost Wyoming have escrow closings, high-cost New York has attorney closings. Attorneys for the buyer’s mortgage lender, the title company, the buyer and the seller are present. Sometimes an attorney for the seller’s mortgage lender is there, too. “You can have a lot of people sitting at that closing table,” says Neil Garfinkel, a partner with Abrams Garfinkel Margolis Bergson law firm in New York City.
In an attorney-closing state, all the interested parties meet at the closing. They sign documents and hand over a check.
With escrow closings, the purchase money is deposited into an account controlled by a third party, and when all the documents are signed, the money is transferred to the seller. The buyer, seller and lender don’t necessarily have to gather in one room at the same time. The system tends to be less costly, but that’s not always the case.
As for the origination charges that lenders control — fees for administration, application, document preparation, processing, tax service and underwriting, for example — a savvy loan shopper can find big differences among lenders in one state. But if you pick one national lender and compare its fees from state to state, you find that they don’t differ much.
This is where you need to make your own decision about which sort of lender you prefer. Use the information we’ve provided to further your home loan knowledge and relate it to what you already know about Florida home loans. Good luck.
