As the U.S. economy struggles and the housing market flounders, the cost of closing a home loan continues to rise.
In fact, according to an August 16 article in the Dallas Morning News, 2010 closing costs nation-wide are up 36% from 2009. These costs are a combination of appraisal fees, title insurance, loan origination, document fees, courier fees, etc. – all of which have risen.
Bankrate.com recently conducted a survey to find the average cost of closing a loan for a good-credit buyer on a $200,000 purchase with 20% down. They found New York to have the highest costs at $5,623 – with Texas following at $4,708. At the other end of the spectrum, Arkansas was the least expensive at $3,007, followed by North Carolina at $3,255. The U.S. average was $3,741.
In Texas, where residents already pay some of the highest home insurance and property tax rates in the nation, closing costs are up 18% from their 2008 levels.
A primary reason for the jump in costs is the GFE – the mandatory good faith estimate. Lenders must now be more accurate – or they must make their estimates higher in order to avoid liability for a shortfall. Some items cannot change at all from the GFE, while others cannot vary by more than 10%.
Another reason could be the Home Valuation Code of Conduct. This regulation put a 3rd party vendor between the lender and the appraiser – and that 3rd party naturally has to be paid for its services. The result – lower fees to appraisers and higher costs to consumers.
Why have bank fees also increased? Probably because of the CARD Act and the limits it put on bank profits.
Meanwhile, as costs to buyers rise, FHA has decided there will be less risk to them if sellers are more limited in the amount they can contribute toward their buyer’s costs. Thus, the seller concession limit will likely drop from 6% to 3%.
Home buyers remain in a state of confusion as new regulations, new bank policies, and seemingly constant changes to those policies are the norm rather than the exception. Worse, every new regulation seems to add cost – but not value – to the purchase of a home.
For instance: The changes to FHA loans. When the mortgage crisis first hit, “low and no” down loans went away entirely. For a while it looked as if we would go back to the lending practices of 80’s, when you either had 20% down for a conventional loan or 5% down for a FHA loan – and you had to have a good credit score.
Now FHA is once again offering loans at 3 ½% down, and has eased the credit score requirements – but the cost of mortgage insurance has risen to help cover the risk.
Fannie Mae has also brought back 100% loans – but only if you purchase a Fannie Mae-owned home. That’s one way to get your lender-owned homes sold faster than consumer owned homes!
Meanwhile, in spite of government programs that promise to help homebuyers, banks are making it more and more difficult to obtain a home mortgage – even for people with high credit scores.
Author: Mike Clover
CreditScoreQuick.com
