New laws slashing mortgage fees

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New disclosure rule on closing costs will open the door to home buying for more

By Jill Goldman, Special to The Times

We’ve all been in the position of finally putting together enough money to buy a home, or helping a child put money down on a first home, and after putting together a 10-20% deposit, finding ourselves reeling from the mortgage company estimate that includes a whole lot of unexpected monies , or “closing costs” as the industry calls them.

Sure, some of them make sense.  Paying for the appraisal (roughly $400-$500), title search to see if the seller can actually pass the home to someone else (why does the buyer pay for this? Hard to say) and finally, the mortgage insurance if you are putting less than 20% down (hard to swallow, very expensive over time, and does not benefit buyer or seller in any way).

But at least you know what the money is going to.

Then, there are the more ambiguous fees – “origination fee.”  What is it and who gets it? Ask a mortgage professional because it eludes me.  Points? To buy down the interest rate? You are basically paying some of the interest up front to keep the overall interest rate low.  This makes sense as it will both reduce your monthly payment and keep the amount of interest paid over the life of the loan a little lower, but it becomes a four-figure “fee” on the settlement sheet at the outset, just like the mortgage insurance.  So, suddenly, you need almost as much in fees as you needed for the down payment. It is fair to say that closing costs are often the reason renters cannot become buyers, or first-time homeowners need gifts from family to make a purchase.

Suddenly, some recent good news is on the horizon. CNN Money reports that federal regulations are helping to significantly reduce the amount new homebuyers at closing time.

The average cost of closing on a mortgage has fallen by 7.4% over the past year, according to a recent survey by Bankrate.com. At the end of June, a homebuyer looking to close on a $200,000 mortgage with 20% down paid an average of $3,754, $300 less than 12 months earlier.

Included in those costs are origination expenses, such as application fees and the cost of doing credit checks, and third-party fees, such as those paid for title searches and insurance.

The decline can be attributed to new regulations that require lenders to be more accurate when estimating closing costs for borrowers, said Greg McBride, Bankrate’s senior financial analyst told CNN/Money.

The regulation, which was put in place two years ago as part of the Real Estate Settlement Practices Act requires lenders to provide a “good faith estimate” of third-party fees that is within 10% of the actual amount the buyer will pay.

“The big drop in third-party fees indicates the lenders are doing a better job at estimating what the costs will be,” said McBride in the interview.

The most expensive state for closing on a home was New York, where total origination fees and closing costs averaged more than $5,400 for a $200,000 mortgage, according to Bankrate figures. Texas, Pennsylvania and Florida also cost far more than the national average.

Missouri was the cheapest, with total borrowing costs averaging just over $3,000. Other states where closing costs remain low include Kansas, Colorado and Iowa, Bankrate said.

Even on a neighborhood level closing costs can vary significantly, said McBride. Borrowers can save money by getting at least three estimates and paying close attention to the total costs of obtaining a loan rather than getting seduced by low advertised interest rates.

It is not obvious to all buyers that the fine print on these “low advertised rates” does not include any state specific or lender specific fees, the addition of which greatly changes the total cost.  It is important to be comparing apples to apples at all times.  Your real estate professional can help you choose a mortgage person for purchasing or refinancing.

Jill Goldman is a partner at The Matson Goldman Team, Prudential Fox and Roach, West Chester, PA. www.matsongoldman.com

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