How Much Were Your Closing Costs?
Do you remember closing on your first home loan? You sit down in a small room with your realtor, the seller, the seller’s realtor, and a title agency. The agency plops a huge stack of documents in front of you and one by one, you sign your paychecks away. If you are lucky, the title agency will describe a whole page of text in about one sentence that leaves you scratching your head. If your closing was anything like mine, the last signature was on a check for thousands for closing costs. The fee’s are outrageous and for what? You have to pay the county this, the state that, and the title company this etc. etc. etc. Well, it seems this general state of confusion has finally reached people who can do something about it.
A new study from the Urban Institute prepared for the U.S. Department of Housing and Urban Development (HUD) has determined that not only are closing costs confusing but there are wide variations in costs among borrowers for no apparent reason. The study found that African-American borrowers paid an additional $415 in closing cost and Latino’s paid an additional $365 on average. Keep in mind that this is just an average, some minorities paid even more, but why?
Borrowers with college degrees paid $1,100 less in closing costs on average than those that didn’t attend college. What is particularly interesting with this finding is that even if the borrowers had the SAME credit scores, salaries, or loan amounts, the variation still existed. Unless I am missing something, it seems the mortgage industry is preying on those that simply don’t understand the costs tied to closing their loans. Now, I went to college and this didn’t help me much at my closing – I’m sure I paid some costs I couldn’t have avoided if I only knew.
Quoted from the study, “Complicated loan arrangements raise the total costs to home-buyers and increase the variability of fees, suggesting that lenders and brokers in particular profit when transactions are complex and consumers have a harder time comparing alternatives.”
I hope Congress takes seriously this issue during the remaining months of their legislative session. I can not think of any other purchase a consumer makes that requires thousands of dollars upfront (none going to any principal) only to be ABLE to owe hundreds of thousands immediately + interest. I understand there is a process and legalities in order to close on a home, but these terms should be equal for all and understandable at the very least. $
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Comments
@Pete: good idea! I wonder if there is any deviation based on different states, loan amounts, lenders etc?
I am in the market to buy at the moment…We’ll look into it!
I will definitely keep this in mind when I get out of college and eventually considering purchasing my first home. Sounds like a little prior research and knowledge can protect us a lot from the predatory tactics.
@Blake: Man, if I could go back and do things differently in college I would do it in a heart beat. Its amazing how much of an incubator life is at that time…there is so much taken care of even when we are working and going to school. If you can start a nest egg for yourself while in college, then at graduation, you will be WAY ahead of the curve when compared to your peers.
I remember this from our closing, stacks of paperwork, half of which we had no idea what we were signing. When we asked about fees,it was always “this is a standard fee”. Yeah right.
Very frustrating - that might be a good post - actually listing some of the myriad of “fees” that you have to pay at closing.