Kitchen Sink

Are These Numbers Right? Average Closing Costs in 2014

I can get my credit report free online. Why are you charging me $14? I am also curious about the $21 for a “flood cert” and $175 to “prep the closing docs.” I assume the flood cert tells underwriting that our new home is not in a flood zone? FEMA.gov does the same, and for free.

That is how I know the property is not in a flood zone. I looked, for free, prior to making an offer.

The “closing doc prep” fee is even more confusing. We need the closing documents to finalize our mortgage transaction right? Why would prepping documents required to close our loan be an additional fee?

How-much-is-too-much

When we go out for dinner, the restaurant never charges us a plating preparation fee. Nor do they add a utensil surcharge. They understand that plates and utensils are part of the eating process. What the heck is wrong with you guys?

Reviewing closing costs have always proved interesting. Trying to explain junk fees was never easy, and it shouldn’t be.

It is not your loan officers’ fault. They gain nothing from charging junk fees. It is, however, industry standard.

How much is too much when it comes to closing costs? According to Bankrate.com – who conducts an annual nationwide survey of mortgage lender closing costs – it depends on where you live.

Benchmarked at a purchase price of $200,000 with 20% down payment and a 740+ credit score, it is important for buyers in states like California and New York to understand they’ll likely need to double or triple the estimate based on their average home prices.

Bankrate includes lenders’ fees as well as third-party fees for services such as appraisals and credit reports as closing costs. The survey does NOT include a number of fees that you will likely still have to pay. Those include title insurance, title search, property taxes, property insurance, homeowners’ association fees, per diem interest or other prepaid items. It also does not include mortgage insurance premiums on FHA loans.

Hawaii, with average closing costs of $2,919, leads the nation as the most expensive place to close a mortgage. The top 5 is rounded out with the following states:

  • Alaska – $2,915
  • New York – $2,675
  • South Carolina – $2,658
  • California – $2,639
  • New Mexico – $2,566

On the flip side, Wisconsin leads the pack with the cheapest average closing costs at $2,120. Kansas and Missouri trail Wisconsin tightly, with both averaging $2,163.

Nevada, Tennessee, Ohio, Washington D.C., and Alabama fill out the rest of the top ten cheapest states to close your mortgage loan.

Regardless of where you live, it costs money to close your mortgage. Does it cost too much? Probably, but for most borrowers it is what it, proverbially, is.

With the recent regulatory changes, loan officers have very little or even no control over the fees charged. Much like only using Annual Percentage Rate (APR) as your primary decision driver, basing your mortgage decision primarily on closing costs is equally unwise.

Neither of those important mortgage metrics matter if they are inaccurate from the start or, even worse, part of an estimate on a loan that was poorly pre-qualified and will never close.

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Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.