Increasingly Close

The good news for homebuyers is that mortgage interest rates continue to hover near record lows. The bad news is that closing costs are on the rise.

In fact, an annual survey by Bankrate published in July from reveals that the nationwide average for closing costs – the fees assessed by the lender, title company, appraiser and others prior to completion of a real estate transaction— has risen nearly 9 percent from 2010.

Experts say this increase, which can be as high as 20 percent in some areas, is due to several factors, not the least of which is stricter lending regulations in recent years.

“The enhanced due diligence lenders are performing on loan applicants is translating into higher lender closing costs,” says Greg McBride, senior financial analyst with Bankrate.com in North Palm Beach, Fla. “Lenders are required to be precise in quoting their fees on the Good Faith Estimate, which is also a contributor to the higher quotes borrowers are now seeing,”

With more regulatory pressure on banks comes the need for adding more staff to keep up with the new rules – overhead costs that often are passed on to borrowers.

“States and counties are also looking to raise revenue, as they have seen a decrease in revenues in other areas such as real estate taxes as values have decreased,” says Brian Fein, regional sales manager with Mortgage Master, Inc. in Rockville, Md. “So we’ve seen in increase in recordation and transfer taxes charged by these municipalities.”

Lenders today have limitations on what they can charge due to recent legislation. If a borrower chooses a loan with a mortgage broker with zero points, they are not charged for credit reports or processing – they only pay the lender costs for documentation, underwriting, appraisal, flood determination and certification, appraisal and wire-transfer fees. If a borrower chooses a lower interest rate, however, the origination fee may be higher than it was a year ago due to lower loan amounts, as prices have dropped, and they can be charged for credit and processing when they elect to pay origination charges, says Victor Benoun, president, The Mortgage Source, Studio City, Calif.

“Escrow companies also may be charging more due to lower purchase prices, and they have included more fees as part of their services,” Benoun says. “It’s not unusual to see notary fees, document fees and sub-escrow fees, which can add several hundred dollars to the closing costs.”

To save money on closing, try these tips:

• Shop around with up to three different lenders on the same day to compare fees on the Good Faith Estimate.

• Shop around on your own and compare costs for any service provider listed on the GFE, including the property inspector and title insurance company.

• Ask for the difference in costs for zero points versus paying origination fees.

• Monitor and work to improve your credit score prior to applying for a loan, and put down as much as you can afford for the down payment, which can lower your fees.

• Of course, ask the seller for a credit toward closing costs as part of your negotiation.

Lastly, don’t hold your breath hoping that closing costs will decrease any time soon.

“The regulatory environment for lenders isn’t getting any less stringent,” says Scott Stucky, chief operating officer with DocuTech Corp., a mortgage document company based in Idaho Falls, Idaho says. “This will continue to require additional resources from lenders, and these are not revenue-producing resources. Therefore, one can assume the overall cost of originating mortgages will go up, which will increase the cost for the borrower.”