In today’s red-hot housing market, everything is more expensive, and it’s making homeownership a challenge for many prospective buyers.
For months, homebuyers have had to deal with record-high asking and final sales prices. And in recent weeks, a record rise in mortgage rates has made the cost of buying a home even more expensive.
But that isn’t even the end of it, as a new report found that closing costs—additional fees due at the end of any real estate transaction—have also jumped this year.
The report, released last week by CoreLogic’s ClosingCorp, found that closing costs rose 13.4% in 2021. The increase has pushed the average extra fees for a single-family home to nearly $7,000.
Closing costs generally include expenses related to paying off lenders’ fees and underwriting mortgage loans. Other common closing costs include taxes, real estate commissions, and title insurance payments.
The bulk of these costs are the taxes involved with finalizing the sale of a new home. But even excluding taxes, closing costs are up over 11% since last year.
Closing costs are more expensive for homebuyers in certain locations, such as New York, Delaware, and Maryland, where average closing fees are all above $14,000.
Washington, D.C., is by far the most expensive market for closing costs, at an average of nearly $30,000. That is only slightly more expensive than the average budget to rent a one-bedroom apartment in D.C. for a year.
Nationwide, home closing costs are now over $1,000 more expensive than before the pandemic. It’s largely a consequence of lenders increasing their fees to offset soaring loan production expenses, including commissions and compensation, in addition to making up for the decline in business due to lower sales volume. In the last few months of 2021, an individual lender originated 2.4 loans per month, a dip from the 3.6 monthly loans an average employee approved in the previous quarter, according to a recent study by the Mortgage Bankers Association (MBA).
“As the mortgage industry comes off two years of record-low interest rates and red-hot consumer demand, lenders are now pivoting to address increasing headwinds from higher loan origination costs and lower origination volumes,” Bob Jennings, CEO at CoreLogic’s ClosingCorp, said in the latest report.
Profits have been dropping for mortgage lenders this year. The MBA study found that banks were collecting a $1,099 profit on each loan they approved in the fourth quarter of 2021, significantly below the $2,594 from the previous quarter.
Originating a mortgage loan cost banks nearly $9,500 per loan at the end of 2021, a record high for the study.
Less profitability for mortgage lenders might spell even more trouble for homebuyers in the near future, as reduced profits might make banks more apprehensive about issuing home loans.
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