Don't Get Tricked into Paying Higher Prices

A recent study performed by the Urban Institute found that many Americans, especially minorities, overpay total closing costs by thousands of dollars when they purchase a new home. The study not only found that minority borrowers pay, on average, hundreds of dollars more in total loan origination fees as compared to non-minority buyers, but that that there are significant variations in loan charges that are unsupported in most home closings. These unsupported variations include title fees, in addition to other miscellaneous closing charges.

During the study the Urban Institute found major discrepancies in closing costs when comparing homebuyers with similar credit scores, loan terms and mortgage amounts. These dissimilarities were more often than not based on:

  • Education level
  • Geography
  • Race and
  • Ethnicity

However, even after these characteristics were accounted for, there were still very considerable variations of payment amounts at the closing settlement. The study concludes that the reason for this vast variation in costs is that the process is too confusing. HUD Deputy Secretary Roy A. Bernardi agrees, "This report demonstrates once and for all that the process consumers endure when they buy their homes is entirely too confusing," said HUD Deputy Secretary Roy A. Bernardi. "Clearly, we need to open the window and allow consumers to understand the fine print and shop more effectively for the largest purchase of their lives."

The Key Findings of this Report, as told by the HUD are as follows:

  • Total loan fees can vary by thousands of dollars from borrower to borrower even for the same loan amount.
  • Loan charges and title fees vary considerably from state to state even for similar loans. Even in the same state, disparities in title costs among identical borrowers can be more than $1,000.
  • On average, borrowers see no reduction in out-of-pocket fees when they agree to higher interest rates. Ideally, consumers ought to receive a dollar-for-dollar credit for paying a so-called "yield spread premium" that results from agreeing to a higher interest rate loan. In fact, many borrowers see no reduction at all and even pay more in total loan fees.
  • African-American families pay an average of $415 more in total loan origination fees than non-minorities.
  • Hispanic borrowers pay an average of $365 more in total loan origination fees than non-minorities.
  • Consumers obtaining loans for which comparison shopping is easiest, so called "no-cost loans," enjoyed an average cost savings of $1,200.

Return back to the FHA Mortgage home or the FHA Lending Guide.