In 2010 California remains in the top 5 states in regards to the highest closing costs in the country.  Since 2009 closing costs have risen but not as much as some are saying.  Before 2010 lenders were not penalized if their closing costs reflected lower numbers than the actual fees.  Now there are penalties in place which are making lenders stray from this lowballing.  There are no penalties for overestimating so lenders are starting to do so (to stay on the safe side).  A lot of surveys use good faith estimates to determine the closing cost averages in the USA.  Because lenders are not coming in low on these GFE’s anymore, the closing costs in 2010 look like they are skyrocketing.   

Closing costs are not going up as fast as reported however they are still on the rise.  In lue of the current economy the government is cracking down on lenders and adding more paperwork and compliance issues to the mix.  This extra time will of course raise labor hours which in turn creates higher costs.  According to surveys taken by lender fees have gone up 22.8 percent since 2009 and third party fees such as title, appraisals etc have gone up a whopping 47.2 percent.   I believe these surveyed percentages are way too high because of what I wrote above about good faith estimate regulations, however costs are still on the rise.  Because of the increased labor required by lenders, origination fees have gone from an average of $1,192 to an average of $1,463.  Third party fees are the main cause of the higher closing costs, which are mainly title charges (title search and title insurance).  The average total third party fee went from an average of $1,547 to a shocking $2,277.  These fees are taken from good faith estimates which are of course coming in higher than the actual cost because of new regulations making lenders to estimate high.

Closing costs are hard to explain because there are so many variables and many consumers are worried about “junk fees”.  I will try to go over the main closing costs and what you will likely have to pay on a $200,000 mortgage loan.  There are 4 basic categories when it comes to closing costs.  They are non-recurring closing costs, points, recurring closing costs and fees associated with the purchase transactions.    

Lender fees are of course charged by the lender and usually include the following (some might not apply to every situation): points, application fee, document preparation fee,  origination fee (origination point normally 1%), processing fee, tax service fee, underwriting fee, wire transfer fee, and a notary fee.  Lender’s fees are non-recurring closing costs.  Other non recurring closing costs are lenders title insurance, escrow fee, appraisal fee, credit report fee, statement fee, and recording fees.

Recurring closing costs are fees you are going to have to pay anyway and are based on the timing of your loan.  Some examples of this are prepaid interest, property taxes, insurance, and impounds (private mortgage insurance etc).

Finally you have other fees that are associated with the transaction.  Such fees would be inspections, owners title insurance, transfer fees (mostly paid by seller), and prorations.

Usually you will pay right around 3-3.5 percent of the value of the property in closing costs, however these costs sometimes go as high as 6%.  You need to sit down with your lender and get a solid good faith estimate before moving forward.  You should expect to pay $6,000 in closing costs on a $200,000 loan at a minimum.  Factor that into your purchase decision!  Always remember to try to get the seller to pay some closing costs.  This can help you greatly!  You can also talk to your lender about financing your closing costs within the loan.

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