For the second year in a row, New York is the state with the highest mortgage-related fees in Bankrate.com's annual closing costs comparison survey. New York's high title and settlement costs lifted the state well above No. 2 Texas. The Lone Star State was followed in the top five by Hawaii, Ohio and Florida.
Home buyers in Missouri pay the lowest closing costs, according to this year's study. The Show Me State was followed by Michigan, New Hampshire and Montana. Wyoming, which was last year's lowest-cost state, was fifth lowest this year. The difference between New York and Missouri was $1,174 in this year's survey. That's a hefty sum to first-time buyers who typically scrimp to save for a down payment and closing costs.
Lender, title and settlement fees totaled an average of $3,024. The median cost was $2,978, meaning that in half the states, they totaled more than that. These figures don't include county recording fees or recurring costs such as homeowners insurance, property taxes, homeowner association dues or prorated mortgage payments. No matter where you live, the key to getting a good mortgage deal is to shop around. A smart borrower in Buffalo, N.Y., who asks sharp questions of two or more lenders, might get a better deal than someone in St. Louis who passively accepts the first offer.
"Just ask questions," says Jessica Cecere, director of Consumer Credit Counseling Service in West Palm Beach, Fla. "Ask, 'What's this? What's that? Why is this fee so high?'"
And keep in mind that the first tally of closing costs that you get, called the good faith estimate, is just that -- an estimate. In many cases it is revised at least once, and then again within a day or two of closing. That last document, called the HUD-1 statement, is almost always more accurate than the initial good faith estimate.
For this year's annual closing costs survey, Bankrate.com obtained eight to 10 good faith estimates in each state from the Web sites of online lenders. Researchers picked a ZIP code in the biggest city in each state (with one exception) and requested information on the closing costs for a $200,000 loan there. They requested fees on a 30-year, fixed-rate mortgage for a borrower with a 20-percent down payment and good credit to buy a single-family house. Buffalo, N.Y., was substituted for New York City because the Big Apple is unique. Washington, D.C., was included in the survey, for a total of 51 geographic entities.
Closing costs can be divided into three categories. The first is loan fees, which are charged by the lender. The second is title and settlement fees charged by parties other than the lender. The third category is taxes and prepaid items, such as homeowners insurance, association fees and prorated interest. The survey includes loan fees and title, and settlement costs, not taxes and prepaid items, although there are certain taxes that are baked into the numbers in some states.
Hawaii had the highest loan fees charged directly by lenders, averaging $1,922 in the survey, and New Hampshire had the lowest, at $1,401. Loan fees in New York and Texas were within $80 of the national average of $1,672. Thirty-five of the 52 cities in the survey had lenders' fees within $113 of that average, either higher or lower.
It's typical -- heck, well-nigh de rigueur -- for a national lender to charge different amounts from state to state. "If you go to a Wal-Mart or other store, you go to one location and they're priced differently than another location," says David Routen, senior vice president for Internet sales for Countrywide, the nation's biggest mortgage lender. "Nobody is priced the same in all areas. Even McDonald's and Wendy's, they're going to be priced differently in different locations, and mortgages are very similar to that."
There was more variation in title and closing charges. Fees averaged $1,353, with 40 of the 52 cities falling within $198 on either side of that figure, but title insurance and settlement fees pushed New York and Texas to the top of the heap as the most expensive states. In most states, title insurance averages less than $600, according to the survey. In New York and Texas, title insurance premiums are well above $1,000 on a $200,000 loan.
In Texas, title insurance premiums are set by the state, and the premium for a $200,000 loan is $1,423. That pays for the insurance policy, as well as the title search. Texas title agencies are allowed to tack on other fees for services such as setting up escrow accounts and delivering documents. The closing usually is conducted at the title agency.
In New York, the closing usually is conducted at a lawyer's office and is attended by attorneys for the buyer's mortgage lender, the title company, the buyer and the seller. Sometimes an attorney for the seller's mortgage lender is on hand, too. Presumably, they're not working pro bono, so they're drawing paychecks for being there. That adds to the expense of closing a mortgage in New York.
Then there's New York's mortgage recording tax, which varies depending on which county, city, borough or transportation district the house is in. The mortgage recording tax includes something called the "special additional tax," which the lender is obligated to pay, and isn't supposed to be passed on directly to the borrower as a separate line item. In Buffalo, that tax is one-quarter of 1 percent.
Naturally, the lender doesn't ultimately pay this tax. "As such, multistate lenders might have a quarter-point higher fee for New York so they don't have to absorb it," says Ellen Bitton, owner of Park Avenue Mortgage in Manhattan. "Even though they're paying for it, they're passing it along."