February 16, 2017
More than 50 percent of homebuyers were surprised that they had to pay closing costs or that the fees were higher than expected, according to a survey released by ClosingCorp.
Wilson Perkins Allen Opinion Research, on behalf of ClosingCorp, surveyed 1,000 first-time and repeat homebuyers who had purchased a home between Jan. 1, 2016 and Jan. 1, 2017. The survey explored whether the year-old TILA-RESPA Integrated Disclosure (TRID) rule has helped consumers better understand the closing costs associated with purchasing a home.
Here are some of the findings:
- When asked what surprised them about their closing costs, 17 percent of all homebuyers were surprised costs/fees were even required and 35 percent of all homebuyers were surprised that their costs/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:
- Mortgage insurance (24 percent)
- Bank fee/points (23 percent)
- Taxes (22 percent)
- Title insurance (21 percent)
- Appraisal fees (20 percent) and fees paid by the buyer vs. seller (20 percent)
- 58 percent of those surveyed said that their initial loan estimated had changed or been revised prior to closing. Most of the buyers (67 percent) who received a revised estimate were located in the Northeast; and 63 percent had home values between $500,000 and $1 million.
- When asked which fee estimates were changed, the top three answers were: closing costs (12 percent); insurance costs (6 percent); and taxes (5 percent).
- According to the homebuyers, the most common reasons for the changes in the closing costs were a change to the loan based on what they qualified for (31 percent); the lender estimate was not accurate (27 percent); and there was a change to the loan based on their request (23 percent).
- 72 percent of homeowners said their loan estimates and closing disclosures were delivered electronically. Interestingly, the vast majority of these homeowners (72 percent) fell into the Millennial age range of 18-34 years old.
- Half of all homebuyers (50 percent) selected their title company. Of those who did not select their own title company, 35 percent said their realtor selected it for them, suggesting that realtors have more influence since they are the homebuyers’ first touch point.
“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, chief executive officer of ClosingCorp. “Lenders and realtors need to keep educating borrowers on the costs and fees associated with closing to alleviate surprises.”
“In addition, our survey shows that 52 percent of lenders were ‘off’ on their initial loan estimates, so there’s significant room for improvement. Using automated fee technology can help prevent lenders from under- or over-estimating closing costs and mitigate the risk of costly variance issues post-closing.”
ALTA has reiterated that the CFPB’s inaccurate disclosure of title insurance fees on the Loan Estimate and Closing Disclosure remains the single biggest cause of confusion that homebuyers express at the closing table.