Facing rising interest rates and housing prices, prospective homebuyers are also contending with increasing closing costs. These costs, which are the fees owed on the day of finalizing a home purchase, have risen significantly in recent years. In 2022, the median cost of closing costs for homebuyers was $6,000, a 22% increase from the previous year. Factors such as state, taxes, mortgage type, and the home’s overall cost contribute to the final closing cost amount.
The National Association of Realtors recently settled on changes that could potentially increase closing costs for some homebuyers. The Biden administration also plans to address hidden fees within closing costs to improve competition, affordability, and choice for homebuyers. Closing costs can vary depending on the location and type of loan, but can typically range from 3% to 4% of the loan amount, equating to thousands of dollars for a typical loan of $400,000.
Some closing costs can include fees for application processing, home appraisals, credit reports, title insurance, and origination fees. Some states require an attorney at closing, further adding to the overall bill. Additionally, some lenders may roll closing costs into the total mortgage, increasing monthly payments over time. States like New York, Delaware, and Washington, DC have the highest average closing costs, while Missouri, Indiana, and North Dakota have the lowest.
Amidst efforts to reduce closing costs and address junk fees, the CFPB has highlighted the steep increases in fees for credit reports, affecting homebuyers seeking mortgage loans. The bureau is working to improve the transparency and competition in the mortgage market to benefit consumers. While these efforts are a step in the right direction, some experts believe that addressing underlying structural issues such as housing supply, labor shortages, and high material costs are essential in tackling the home affordability crisis.
One effective way to lower closing costs is by shopping around and comparing rates from multiple lenders. By getting multiple rate quotes, homebuyers could potentially save thousands of dollars over the life of a loan. Borrowers who received multiple rate quotes during the second half of 2022 could have saved significant amounts over time. It’s important to compare not just the interest rate but also the closing costs offered by different lenders. Getting at least three mortgage offers and comparing them can help homebuyers find the best deal for their financial situation.
