Junk fees are inflating housing expenses. Esavings Tracker is eager to gather your input.

Rising closing costs are squeezing borrowers' finances, adding to the already significant financial strain of home buying. Alongside home prices and interest rates, closing costs constitute a substantial portion of borrowers' financial commitments. These costs encompass various fees such as origination fees, appraisal expenses, credit report charges, title insurance, discount points, and more. Between 2021 and 2022, median total loan costs surged by 21.8 percent for home purchase loans.

In 2022, borrowers typically paid close to $6,000 in closing costs and fees. This upfront expenditure compounds the financial burden of homeownership. Options for covering closing costs include out-of-pocket payments, credits from lenders (often tied to higher interest rates), seller-funded payments, or rolling costs into the loan amount. However, these methods often entail additional expenses or interest accrual over the loan term. Consequently, borrowers without significant cash reserves may face higher costs through elevated interest rates or mortgage insurance.

These fixed costs disproportionately impact borrowers with smaller mortgages, particularly lower-income individuals, first-time buyers, and those from Black and Hispanic communities. A study in 2021 revealed that nearly 15 percent of lower-income homebuyers encountered closing costs exceeding their down payment amount.

Of concern is the recent surge in discount points, with more borrowers reporting payments in 2022 than in previous years. The median amount of discount points paid also increased significantly. While discount points are intended to lower interest rates, they may not always result in cost savings and could potentially add to borrowers' financial burdens. The Consumer Financial Protection Bureau (CFPB) is closely monitoring these trends.

Limited competition exacerbates the issue of escalating housing costs. Many closing costs remain high due to a lack of provider choice, leaving borrowers unable to select services while bearing the associated costs. For instance, lenders' title insurance, designed to safeguard against property disputes, is often imposed on borrowers despite primarily benefiting lenders. Similarly, fees for credit reports, controlled by a handful of dominant players, have seen substantial price hikes, raising questions about market competition and transparency.

The Esavings Tracker is actively examining these issues to ensure fair practices and affordability within the housing market. Your insights are invaluable in guiding our efforts to address these challenges.