Homebuying has become largely unaffordable for many Americans. Since 2022, a family earning the median income and hoping to buy the median home would spend more than 30 percent of their monthly income on their mortgage, taxes, and insurance. Closing costs can make homeownership even more unaffordable for many homebuyers, but just how much of a barrier closing costs pose depends on what state a buyer is in.
At the national level, closing costs are higher relative to loan amount for homebuyers who take out smaller loans. In this post, we explore geographic differences in closing costs and why those differences exist. For this analysis, we exclude prepaid costs, which are forwards on regular payments that a buyer pays at closing. To compare closing cost fees across geography, we use the median value of fees on loans between $400,000 and $500,000.
Overall, our analysis shows that closing costs vary greatly between states, with much of this variation caused by just a few fees.
In 32 states, a homebuyer taking out a mortgage between $400,000 and $500,000 could expect to pay no more than $7,000 in closing costs. In 41 states, these closing costs would stay below $10,000. But in 8 states and Washington, DC, closing costs would likely exceed $10,000. In Delaware, the state with the highest average closing costs, a homebuyer taking out a mortgage between $400,000 and $500,000 could expect to pay more than $29,000, or about 6 percent of their loan amount.
Three of the largest fees drive state-by-state variation
Nationally, only three fees cost more than $1,000, on average: transfer taxes, lender’s and title insurance–related fees, and mortgage origination fees. But these costs do not affect all states equally: 16 states have no or very low transfer tax fees, 1 state doesn’t have a mortgage origination fee, and 18 states lack document delivery fees. All states pay lender’s title and title insurance–related fees, but those fees can range from $358 to $3,496, depending on the state.
Most states have transfer taxes under $1,500 on loans between $400,000 and $500,000. But in Delaware, transfer taxes cost around 4 percent of the total loan amount, on average, resulting in an average transfer tax of $11,215. Delaware also had the highest tax stamp ($10,264), a fee that was negligible or not levied in 33 states. Because the property tax rate in Delaware is 0.61 percent, the 10th lowest in the country, these closing costs provide a valuable source of state revenue.
Lender’s title and title insurance–related fees are lowest in Missouri ($358), followed by Iowa ($425). Iowa had the lowest lender title fee ($175), which is a fixed amount for all homebuyers (covered by a state fund), but had a slightly higher title insurance–related fee compared with Missouri. Pennsylvania has the highest lender’s title and title insurance–related fee ($3,496), almost 10 times greater than Missouri’s.
Some counties do not have digitized property records data, leading to higher costs, as more time is spent to perform the title search and examination. Local insurance laws, which determine how rates are set, also differ across states and can influence what lenders charge for title-related fees. States where title insurance fees are promulgated (i.e., set by the state and without competition between agencies) tend to be the highest. Florida, Texas, and New Mexico are the three states with promulgated title insurance (PDF) and have the 2nd-, 3rd-, and 10th-most-expensive title insurance closing cost fees.
Finally, mortgage origination fees vary greatly depending on the state. In South Dakota, the average fee is $350, while the average cost of mortgage origination fees exceeds $5,000 in North Dakota and Wyoming. Some of this variation might reflect a low population, with fewer transactions in the states with the highest fees, meaning fixed origination costs are shared over a small number of transactions. But that cannot be the only factor, as the state with the lowest mortgage origination fee is also a low-population state.
What can be done to reduce closing costs?
To reduce closing costs, it makes sense to address the most expensive items. Our analysis illustrates, however, why tackling closing costs is such a difficult issue at the national level, as there is considerable variation across states. In the states with the highest closing costs, the large fees in question include transfer and stamp taxes, which can be important sources of revenue for these states.
States, however, can make individual efforts to address other fees that make up a significant portion of costs. Certainly, if all property records data were digitized, resulting in more automated title searches, fees would decrease. Some states require lawyers to handle certain aspects of the process, like closing, which can add fees. States with promulgated rates tend to have higher title insurance–related fees than states that set their own rates. Some states do not allow reissuance discounts on title insurance, so if the home is resold within a short time, no discount is given. Learning from states with lower lender’s title insurance and title insurance–related fees would provide some insight into what can be done to reduce these fees in more expensive states.
Fannie Mae, Freddie Mac, the Federal Housing Administration, and the US Department of Veterans Affairs can also reconsider whether new title insurance should be required on all transactions or whether a more abbreviated procedure can be used for refinance transactions.
Mortgage origination fees can also increase a state’s average closing costs. Mortgage origination remains a labor-intensive business, meaning states with higher labor costs will generally have higher origination fees, despite national entities doing most of the lending. State-specific regulations and the degree of market competition also play a role.
As the mortgage origination process becomes increasingly automated, states should continuously reevaluate whether the activities that generate these closing costs are necessary and whether a less expensive path can achieve the same objective.
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