Texas tops 2009 Closing Costs Exclusive

Texas beats New York in 2009 as the state with the highest closing costs.

Nationwide, the average origination and title fees on a $200,000 mortgage this year totaled $2,732, according to Bankrate's annual survey of closing costs. The fees in the survey don't include taxes, insurance or prepaid items such as prorated interest or homeowner association dues.

New York had been the most expensive state for four years in a row in Bankrate's annual survey, with Texas occupying the runner-up slot. But this year, the two states swapped places. In Texas, the average origination and title fees on a $200,000 mortgage were $3,855 in Bankrate's survey. New York's fees averaged $3,408.

The least expensive state was Nevada, at $2,276. In 2008, North Carolina occupied the bottom rung. (Here is the ranking of all of the states.)

The annual survey is conducted by obtaining online fee estimates for a $200,000 purchase mortgage on a $250,000 house in each state's most populous city, plus the District of Columbia. Because it is so populous, California was split in two: Bankrate surveyed closing costs for Los Angeles and for San Francisco.

The states with the biggest populations tend to have higher-than-average closing costs. This year, the four most populous states occupy the top four spots: After Texas and New York, the highest closing costs were in Florida and San Francisco. Los Angeles ranked 14th.

On the other hand, Illinois is the fifth most-populous state, and, as usual, it was one of the most inexpensive states for closing costs. Illinois ranked 43rd out of 52, with average origination and title-related costs of $2,486 on a $200,000 mortgage.

Texas is perennially at or near the top of the list because of the high cost of title insurance. In Texas, title insurance premiums are "promulgated," that is, the fees are fixed by state regulators. Title insurers in the Lone Star State can't charge more or less than the promulgated rate. On the purchase of a $250,000 house, the title insurance premium in Texas would be $1,644.

Of the seven lenders that Bankrate surveyed in Texas, none got the title insurance premium exactly right, although most were in the ballpark -- between $1,572 and $1,697. That's why these closing cost averages should be taken with a caveat -- they are, after all, derived from estimates.

New rules for good-faith estimate
Beginning Jan. 1, lenders will be required to give more accurate estimates of closing costs, as part of a revision of the Real Estate Settlement Procedures Act, or RESPA. The new rules are designed to prevent the lender from low-balling closing costs when the borrower applies for a loan then surprising the borrower with higher fees at the closing table.

Under RESPA, the lender is required to provide a document called the good-faith estimate of closing costs when you apply for a mortgage. The GFE divides settlement costs into two types: those charged directly by the lender and those charged by third parties, such as title insurance companies, appraisers and flood certifications.

Lenders will have to stand by that first category of fees -- those charged directly by the lenders. So a lender won't be able to put a $250 processing fee on the good-faith estimate and then change it to $500 at the closing table.

The regulations will allow 10 percent of slack in the estimates for third-party closing costs. For example, if next year a lender's good-faith estimate says that the title insurance, appraisal, attorney's fees and flood certification will total $1,500, then the final bill can't exceed that total by more than 10 percent, or $150.

The more-accurate GFE is scheduled to arrive next year. And there has been a substantial change this year: Appraisals cost more.

In Bankrate's 2008 closing costs survey, the average appraisal cost $296. This year, the average appraisal cost $362. The culprit, according to appraisers, is something called the Home Valuation Code of Conduct, or HVCC.

The HVCC is the product of a legal settlement stemming from a lawsuit filed by New York's attorney general. As part of the settlement, the mortgage industry agreed to forbid mortgage brokers from choosing appraisers. The idea was to prevent brokers from pressuring appraisers into overvaluing houses so the loans could go through.

But critics contend that the HVCC weakened independent appraisers and strengthened appraisal management companies, which act as middlemen between lenders and appraisers. By adding a middleman, prices went up, critics say.

Pat Turner, CEO of P.E. Turner & Co. Ltd., the largest appraisal firm in Richmond, Va., said this summer that a bank-owned appraisal management company demanded that he cut his appraisal fee by $150, to $200. He refused, and he says the company will no longer hire him to do appraisals.

The kicker: "That lender charges the borrower $500 per appraisal," he says.

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