Bankrate.com study says Buffalo has third-highest closing costs in U. S.
City less than $200 behind New York City
It’s a lot more expensive to close on a home in Western New York than other parts of the country, thanks to high taxes, costly title insurance and lawyers.
Buffalo has the third-highest mortgage closing costs in the country, easily outpacing most states and such large cities as Miami, Los Angeles, San Francisco and Chicago, according to a new report by a consumer Web site and research firm.
And those costs are only getting worse nationwide, even though home sales are stagnant or down in many parts of the country because of the soft economy and mortgage crisis.
Getting a $200,000 mortgage to buy a house in Western New York this year will cost a borrower an average of $3,845, including origination fees, closing costs and title insurance, according to Bankrate.com. That doesn’t include taxes and fees paid directly by consumers.
That’s just $130 less than No. 2 Texas, as represented by Houston. And it’s less than $200 behind the most expensive market, New York City, at $4,016.
But it’s nearly $200 more than Miami, $500 more than San Francisco, $600 above Los Angeles and $1,000 over Chicago.
“That’s disgusting,” said Linda C. Mallia, president of Hunt Mortgage Corp., the lending arm of Hunt Real Estate Corp. “This is definitely not something to be pleased [by] or proud of.”
Nationwide, the average closing cost rose 14 percent in 2008 to $3,118, despite the stumbling — and in many cities, declining — housing market. Similarly, the median, or middle, tally rose 15 percent to $3,086, in the District of Columbia. The cheapest area was North Carolina, with an average total of $2,650.
As the national mortgage meltdown continues to sap the economy, the challenge of getting and affording a loan has occupied the attention of Americans who are considering buying a house. But the closing costs represent a big upfront hurdle that can catch borrowers by surprise and sometimes even make it difficult to complete the deal.
“Oftentimes, consumers forget about the added fees involved in buying a home,” said Holden Lewis, senior reporter at Bankrate. “Closing costs can be extremely expensive if not researched thoroughly.”
In New York State, Bankrate said, the high fees stem in part from the state’s unusual practice of charging a 1 percent mortgage tax and then imposing part of it — 0.25 percent of the loan value, or $500 in this example — directly on lenders. Borrowers pay the rest.
State law forbids lenders from directly passing that back to borrowers. But lenders compensate themselves by charging more in points or other fees. And those fees are included in Bankrate’s survey, where a direct tax would not be.
“The problem’s real simple,” said James E. Knight, president of the Buffalo Niagara Association of Realtors. “When you cut through all the smoke and mirrors, it all comes down to taxes. We are getting taxed to death.”
New York also has mortgage recording fees that vary within the state, Bankrate said. Locally, those total up to $140, plus a combined state and Erie County real estate transfer tax of $9 for every $1,000 in sale price. The transfer tax is just $4 per $1,000 in the rest of Western New York.
“The fees that the government controls are getting worse,” said Mallia. “Every time I turn around, they’re up.”
Additionally, Bankrate said, title insurance is more expensive in New York, even though it is heavily regulated and the price is set by the state.
And New York traditionally relies on lawyers for closings instead of using less expensive title agents and escrow officers as in Western states. Often, three attorneys come to represent buyer, seller and lender.
“When you have three attorneys involved, it’s going to drive the cost up,” Mallia said.
However, Knight said that’s “just the way we do business in Western New York.”
“It’s a small component of the picture,” he said. “An attorney is vital in the whole process, because they give you that important counsel over and above the expertise that a realtor can bring to a table.”
Bankrate’s survey is based on a 30-year, fixed-rate $200,000 mortgage for a borrower with good credit and a 20 percent down payment on a single-family house. Results include lenders’ origination, title and settlement fees, but not taxes, insurance or prepaid items like prorated interest or homeowner association fees.
The study, conducted in June and July, was based on four to nine “good faith estimates” of closing costs in all 50 states and the District of Columbia, using the Web sites of online lenders.
To determine a state’s costs, researchers picked a ZIP code in each state’s largest city. To ensure that the figures for New York, California and Illinois were not unduly swayed by New York City, Los Angeles and Chicago, Bankrate also looked at Buffalo, San Francisco, Sacramento and Springfield, Ill.
Bankrate’s Lewis urged consumers to do their homework and shop around for the best deal, paying close attention to origination and title fees that in many places can be negotiated, unlike taxes and prepaid costs. All charges must be listed in the good faith estimate.
Some fees, such as origination and brokers fees, are duplicative, while others are simply unnecessary or inflated. Lewis said consumers should question or challenge them, although Mallia said they’re generally not the problem.
“I don’t think the fees that lenders charge are getting worse,” she said. “We’d have to be out of our minds to be raising fees right now.”
