NEW YORK (MainStreet) Mortgage closing costs rose by 6% over the past year and now average $2,539 on a $200,000 loan, according to Bankrate.com.
Closing costs consist of origination fees that are also known as the lender fees and third-party fees which include the appraisal cost and credit score checks.
Origination fees increased by 9% to $1,877 and third-party fees rose 1% to $662. The highest closing costs are in Texas and the cheapest is in Nevada.
Texas's average closing costs of $3,046 are the highest in the nation. Alaska ($2,897), New York ($2,892), Hawaii ($2,808) and Wisconsin ($2,706) round out the top five.
The cheapest closing costs are in Nevada with an average of $2,265. Tennessee ($2,366), Missouri ($2,387), Ohio ($2,392) and Washington, D.C. ($2,402) comprise the rest of the bottom five.
"New mortgage regulations are the biggest reasons why closing costs went up over the past year," said Polyana da Costa, senior mortgage analyst, Bankrate.com. "The good news is that some lenders have not increased fees. To get the best deal, consumers should compare good faith estimates from at least three different lenders."
Consumers need to look beyond the interest rate when they are getting a mortgage. The best method is to ask a lender for a good faith estimate form in writing, she said. By law, consumers can receive the report in three days.
Another strategy is to call lenders and ask them what their current closing costs are, da Costa said.
"It's a good way to start," she said. "Look at the big picture by shopping around and ask about closing costs."
Too many consumers are focused solely on the mortgage interest rate that they do not even think about the closing costs, da Costa said.
"I would keep both the closing costs and mortgage interest rate in mind as soon as you start shopping for a mortgage," she said. "Don't get too hung up on the interest rate." While some lenders claim their closing costs are lower, some of them will make up the difference with a higher mortgage rate, da Costa cautions.
Consumers should be aware of lenders who claim they can offer deals without any closing costs.
"There is no such thing," she said. "Consumers may not be paying upfront, but somehow it is built into the mortgage rate. You're not getting free closing costs."
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Consumers should focus on their lender or origination fees since it is negotiable. "Consumers need to be aware this is how lenders get paid," da Costa said. "Don't settle for first lender you talk to. Get quotes from several lenders."
Lenders charge higher fees in some states because it is the cost of doing business in some states, such as the taxes.
"There is nothing you can do except shop around," she said. "Lenders are pretty competitive right now since they are not getting as much refinance business. They are happy to compete for your business."
Bankrate surveyed up to 10 lenders in all 50 states and Washington, D.C. in June 2014. Researchers obtained online good faith estimates for a $200,000 mortgage to buy a single-family home with a 20% down payment. Costs include fees charged by lenders, as well as third-party fees for services such as appraisals. The survey excludes taxes, title fees, property insurance, association fees, interest and other prepaid items.
Click here to view the average closing costs in all 50 states and Washington, D.C.: Borrowers can do a few things to try to mitigate the higher costs caused by heightened compliance expenses, said Dan Smith, president of PrivatePlus Mortgage in Atlanta.
"Consider a no-closing-cost transaction structure where the closing fees are paid by the lender," he said. "In addition to reducing the out-of-pocket expenses associated with the transaction, this scenario puts the consumer in a better position to gain additional savings and take advantage of future reduction in interest rates should they occur. In a purchase scenario, the consumer may ask the seller to defray some or all of the closing fees as part of the purchase agreement."