Buying a home is stressful enough, but arriving at the closing and learning of unexpected costs can add to the stress. A new survey reveals that 50 percent of homebuyers are surprised at the amount of closing costs when they go to sign closing papers.
The survey, conducted by Wilson Perkins Allen Opinion Research, on behalf of ClosingCorp, showed that 17 percent of all homebuyers were surprised that costs or fees were even required, and 35 percent were surprised that their costs or fees were higher than expected. However, 31 percent of homebuyers were not surprised at all about their closing costs because their loan estimates and closing fees matched.
The top five closing costs that most surprised homebuyers were: (1) mortgage insurance (24 percent), (2) bank fee/points (23 percent), (3) taxes (22 percent), (4) title insurance (21 percent), and (5) appraisal fees (20 percent) and fees paid by the buyer vs. seller (20 percent).
The most common reason for discrepancies in closing estimates was that some of the amounts had been changed or revised prior to closing. This reason was given by 58 percent of the surveyed homebuyers and seemed to occur in 63 percent of homes priced between $500,000 and $1 million.
According to other homebuyers, the most common reasons for the changes in the closing costs were: (1) a change to the loan based on what they qualified for (31 percent), (2) the lender’s estimate was not accurate (27 percent), and (3) there was a change to the loan based on their request (23 percent).
When asked which fee estimates were changed, the top three answers were: (1) closing costs (12 percent), (2) insurance costs (6 percent), and (3) taxes (5 percent).
Interestingly, 72 percent of homeowners said their loan estimates and closing disclosures were delivered electronically. The vast majority of these homeowners fell into the Millennial age range of 18-34 years of age.
“As more and more millennials become first-time homebuyers, TRID or Know Before You Owe has made it easier for them to understand the costs and fees they’ll face at closing. Yet there are still surprises during the closing process,” said Bob Jennings, CEO of ClosingCorp. “Lenders and Realtors need to keep educating borrowers on the costs and fees associated with closing to alleviate surprises.”
Another fact revealed by the survey was that half of all homebuyers (50 percent) selected their own title company. Of those who did not select their title company, 35 percent said their Realtor selected it for them, suggesting that Realtors have great influence since they are the homebuyer’s first point of contact when searching for a home.
The purpose of the survey was to explore whether the year-old TRID rule has helped consumers better understand the closing costs associated with purchasing a home. Respondents in the survey included first-time and repeat homebuyers who had purchased a home between January 1, 2016, and January 1, 2017.