Closing costs are down

The average cost of closing on a mortgage has dropped by 7.4 percent over the past year, reports CNN Money. Based on a recent survey conducted by Bankrate.com, a $200,000 mortgage with 20 percent down might cost a buyer $3754 in closing fees, or $300 less than one year ago.

Greg McBride, Bankrate’s senior financial analyst, attributes the decline of closing costs to the Real Estate Settlement Procedures Act (RESPA) established two years ago, which requires lenders to provide buyers with “a good faith estimate” of third party fees. The numbers must fall within 10 percent of the actual charges.

RESPA’s aim is to protect consumers from excessive settlement fees charged by abusive practices by clarifying costs before the closing. Here is what the U.S. Department of Housing and Urban Development states on its website:

“The most recent RESPA Rule makes obtaining mortgage financing clearer and, ultimately, cheaper for consumers. The new Rule includes a required, standardized Good Faith Estimate (GFE) to facilitate shopping among settlement service providers and to improve disclosure of settlement costs and interest rate related terms. The HUD-1 was improved to help consumers determine if their actual closing costs were within established tolerance requirements.”

RESPA appears to be doing its job, helping buyers save or, at the least, better understand the closing costs associated with purchasing a home.