Closing Costs: What They Are, Where They’re Highest, How You Can Save

Closing costs.

Probably two of the least favorite words in the real estate lexicon, if not the entire English language. You’ve just agreed to borrow $200,000, and make three decades of monthly Florida mortgage payments — and now you have to shell out a few extra grand (cash, no less) for title searches, application fees and other costs.

Ouch! Those fees aren’t nominal, either, especially when you’re paying out of pocket. They average more than $3,000 nationwide, according to a survey released by Bankrate.com. In examining data in all 50 states and Washington, D.C., the study found closing costs included origination fees charged by lenders such as application fees and document processing fees, along with title and appraisal costs that are paid to third parties.

The national average? A hefty $3,024.

“[Closing costs] are not insubstantial, so consumers should shop around when they’re in the market for a mortgage,” said Greg McBride, senior financial analyst with Bankrate.com.

Not only is Miami real estate some of the nation’s hottest, but it carries some of the heftiest closing cost averages. The top five U.S. cities in that quite undesirable department:

• Buffalo, N.Y., $3,887
• Houston, Tex., $3,578
• Honolulu, Hi., $3,407
• Cleveland, Oh., $3,354
• Miami, Fla., $3,349

The major metropolitan areas with the lowest:

• St. Louis, Mo., $2,713
• Detroit, Mich., $2,714
• Concord, N.H., $2,734
• Billings, Mont., $2,737
• Cheyenne, Wyo., $2,772

The surveyed home buyers were also sked if the closing costs they paid when they actually signed the paperwork for their Florida home loan came close to the so-called good faith estimate of closing costs they got from their lenders prior to the official closing.

Some 60 percent said the estimate was right on the mark, but 13 percent said they paid a higher amount than the estimate, and 8 percent ended up paying less. The rest either didn’t know or did not reply.

The survey of closing costs didn’t cover government fees and other items that are essentially passed through by the lender for payment by the borrower. These fees vary significantly by location, and many mortgage advisors warn that some lenders do a notoriously poor job of estimating what the fees are.

As a result, consumers should probably expect that closing costs will be above rather than below the good faith estimate, he said.

One way to keep closing costs down for iterms like title insurance is to make sure you get the best rate — not a given, as many providers simply refer you to their company of choice. Ask the lender to recommend companies that offer cheaper policies, and make sure they offer what they say they do. Also, home seekers should remain on the lookout for “junk fees,” or inflated costs for things like document preparation, that can boost their overall expenses.

OUR ADVICE: Given the current market conditions, a lot of sellers are offering incentives to help their houses stand out among the massive amounts of inventory, and a popular technique is for the seller to pay closing costs for prospective buyers.

Therefore, if you’re looking to buy a house and can arrange this with a seller, it may save you multiple thousands of dollars up front, increasing your Florida home loan borrowing ability — and bargaining — power greatly. With prices so high, that could be the difference maker as to whether you can afford a home. Look around and find the best deal!