Federal regulators are investigating how excessive and junk fees contribute to the rising mortgage closing costs, which have increased by over 36% since 2021, as per a government analysis. The Consumer Finance Protection Bureau (CFPB) is calling on both borrowers and lenders to share their experiences.
The CFPB seeks public comment on the reasons behind the significant rise in mortgage costs, including fees such as title insurance and credit report fees. They aim to understand the impact of these rising costs on housing affordability, housing access, and home equity. According to the CFPB, higher costs may hinder mortgage lenders from offering competitive loans due to the increased expense of processing applicants.
The bureau is particularly interested in which fees are competitive, how they are determined, who benefits from them, and which costs have seen the most significant increases over recent years. Insights from this public inquiry will shape future rules and policies.
Currently, the median closing costs for home buyers exceed $6,000. With mortgage rates hovering around 7% and the median cost of a U.S. home nearing $417,000, the financial burden on home buyers is substantial, according to online real estate brokerage Redfin.
"The CFPB is looking for ways to reduce anti-competitive fees that harm both home buyers and lenders," stated CFPB Director Rohit Chopra.
Complicated Pricing Structures Hide Excessive Fees
Recent CFPB research revealed that consumers often pay more for products with complex pricing structures compared to those with all-inclusive pricing. Study participants, acting as buyers and sellers in various scenarios, struggled to compare prices across multiple offerings when faced with complex pricing, leading to higher overall costs.
Mortgage closing costs encompass various fees, including appraisal fees, inspection fees, discount points, loan origination fees, mortgage insurance premiums, title fees, and more. According to the CFPB, some lenders require borrowers to address each fee individually rather than grouping them together.
How To Reduce Your Closing Costs
Closing costs typically range from 2% to 6% of a home’s purchase price. For instance, on a $300,000 home with a $60,000 down payment, closing costs could reach up to $12,728. Here are some tips to help reduce these expenses:
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1. Evaluate Your Loan Estimate: Within three days of your application date, you should receive a loan estimate listing all your closing fees, including negotiable ones. Ask questions about any unclear itemized charges and look for third-party services that can save you money.
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2. Ask for Seller Support: Some sellers may cover your closing costs to expedite the deal. These seller concessions can also include payments for home repairs or improvements.
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3. Seek for Deals & Cashbacks: Some lenders offer closing cost assistance, especially for first-time home buyers or those with lower annual incomes. A loyalty discount might be available if you use a bank where you already have an account.
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4. Opt for No-Closing-Cost Mortgage: These loans cover your upfront fees but typically come with a higher interest rate, potentially leading to higher long-term costs.
By understanding and managing these fees, home buyers can navigate the complexities of closing costs and potentially save money on their mortgage journey.