Bankrate says that the increase is due to tightened lending rules as a result of the housing crisis. Fannie Mae and Freddie Mac, the now government-controlled mortgage finance companies and who buy up a majority of the nation’s home loans, require higher fees these days. Those costs apparently are getting passed on to borrowers.

“Increased regulation is driving up costs for lenders, and those costs ultimately get passed on to borrowers,” said Greg McBride, Bankrate senior financial analyst, in a telephone interview as quoted in a Bloomberg article. “The amount of diligence in underwriting is certainly warranted after the collapse, but it comes at a higher cost.”

Lenders’ origination fees seem to be making up the bulk of the closing cost increase. These charges, which include things like underwriting and processing services, have risen on average 10.3 percent from last year, to $1,614.

“Interest rates get a lot of attention, and rightfully so, but it’s also important for consumers to compare lender fees when shopping for a loan,” said McBride said in the company’s press release.

By area, New York had the most expensive closing costs in the nation, with average fees of $6,183, up 10 percent over 2010. Texas was second with costs rising 5 percent to $4,708. Both states have been in the top five list in the Bankrate survey for the past five years.

Among the least expensive areas were Arkansas with $3,378 in average fees, North Carolina with $3,410, and Indiana with $3,430.

In order to qualify buyers must meet certain criteria. First, they must enter into a purchase offer between April 11, 2011 and June 30^th and close on that property by the program end date of June 30, 2011. The offer is only available to those purchasing a HomePath home and the home purchased must be the primary residence of the homeowner and the buyer must reside in the home after purchase. Property investors do not qualify for the incentive.

In addition to Fannie Mae offering the closing cost incentive, home buyers also enjoy other benefits of Fannie Mae loans including a lower down payment. Most homeowners who purchase homes with an FHA loan need only put 3% down, which can be considerably less compared to the down payment on a conventional home loan. Some Home Path home loans, depending on buyer qualification also offer up to $35,000 in renovation loans and/or waived mortgage insurance premiums.

Terry Edwards, Fannie Mae’s executive president said that the program is a means to hopefully boost sales of foreclosed homes.

Attracting qualified buyers to the market and reducing the inventory of vacant homes remains essential to stabilizing neighborhoods and helping the market recover. Since interest rates remain low, the incentive will go a long way toward helping even more families buy a new home, so this is a great time for Fannie Mae to offer some assistance.

Potential home buyers who are looking to cash in on the deal can view eligible homes right on the internet. HomePath properties are easy to locate on the HomePath website and searches can be done to look at homes in a particular state, town or even by zip code. You can also search easily for homes that are in your price range. Photos are available and home buyers also have access to area information including what school district the home is in, how large the home is, what the property taxes are, the homes current conditions and more.

While Home Equity Lines of Credit (HELOCs) often come with no closing costs it is virtually impossible for originating lenders to offer first mortgages without any closing costs. Eliminating closing costs all together on a first mortgage is difficult even in the best of situations because of the number of moving parts there are in the closing process.

Minimally there are six or more parties who do work which ends up being due at closing. Those costs will be paid one of three ways, generally, which include the seller paying them, the buyer paying them or the lender paying them from the proceeds of the loan. Understanding how each of these affect you is important because what may be advantageous to one borrower may be detrimental to another.

Closing costs are somewhat misunderstood by most home loan borrowers because it is rare for the mortgage broker or loan officer to take the time to provide some basic information about the home loan process and more specifically the closing costs associated with a new home loan. While this article intends to introduce the reader to closing costs it is not within the scope of this article to identify and explain each cost individually. Costs that are paid at closing can be broken down into categories:

True closing costs

True closing costs of a home loan are costs that are incurred because there is a loan. There are other costs that would be included at closing which are not true closing costs. What we will refer to as true closing costs are fees associated with the loan such as mortgage origination fees, underwriting fees, processing fees and other lender fees. Lender’s title coverage is also a true closing cost as would be any inspections or other legal fees required by the lender.

Incidental closing costs

Regardless of whether or not one is using a mortgage company to secure a home loan or paying cash for a property there are fees which would be prudent if not required. These include attorney’s fees and title certification fees, appraisal fees and even inspection fees if the home buyer so desires. While these are included on the settlement statement they would also be due if the lender was not being used - in other words if there was no home loan associated with the transaction these fees would still exist.

Pre-paid items

There are costs which are shown on the HUD1 settlement statement which are paid to third parties such as property taxes, home owner’s association fees and dues and advance insurance payments. While these items may indeed be part of the funds brought to the attorney at the closing table they are fees neither charged by nor benefiting the lender, the seller or any other agent involved with the actual property sale.

Agency fees

While this one is rarely line itemized as a closing cost it generally consists of the largest portion of fees being disbursed at closing. Virtually every agency fee is paid from the seller’s proceeds at the closing table but there are rare instances when the agency fees are paid in cash by the buyer at the closing table.

Negotiable

Almost every closing cost is negotiable by the buyer. Mortgage companies and loan officers are also able to help with closing costs by adjusting loan amounts and interest rates which is where the advertising originates saying there are no closing cost loans. The truth is the closing costs are still due and they are being paid by the home loan borrower but in some way different than bringing cash to the closing. Whether or not it is a wise decision to have the loan structured so that the borrower is bringing less cash to the closing table is a cause for an individual consideration with a trusted, experienced, home loan expert.

Increases in FHA UFMIP, monthly MI factor, and reductions in seller paid closing costs
I’m sure you’ve heard through the grapevine all the recent changes that are going to be implemented with FHA loans. Basically now, regardless of consumers’ credit score and down payment, people will start seeing an increase in the amount that they are going to finance (UFMIP). About a year ago, the higher the score, the less UFMIP they would have to pay (risk-based adjustments), but not now.

Another thing that may sway less “qualified buyers” in the door is the reduction in seller contributions. More often times than not, 6% was WAY more than enough needed to help a buyer absorb and finance some of the costs, but just like everything in the mortgage industry, a few bad apples spoil it for all. Mortgage lenders were jacking up fees, telling Realtors, “Yo we need that full 6% if you wanna close this deal!” and look where we’re at now.

RESPA
With all these new RESPA laws that have started off the year with a BANG, what is happening is a huge staffing spike for mortgage companies. Mortgage lenders are creating compliance departments so they don’t get wacked by RESPA, and title companies are having a complete overhaul of their title software to stay in compliance as well. Who do you think is going to be picking up the tab for this? Consumers.

Feds Purchase Program
So now everything is going pretty damn good with rates, and I’d think you’d agree. Well a major reason rates are so low is because the economy is still in the dumps and the Fed is buying up MBS (Mortgage Backed Securities). MBS is what control mortgage rates in case you didn’t know. Well this is not going to go on forever, and what is going to happen is the Fed is going to stop buying pools of BILLIONS OF DOLLARS of these securities? This week, the Fed’s buying was $0.4BB less than previous weeks, so we are already starting to see the reduction of their commitment and investment towards the MBS market.

Equity Markets
The stock market has been on a downward spiral for a long enough time already. People have been watching their money go “bye-bye” for the last few years, but signs of a market recovery are already on the horizon.

Usually when equity market’s do bad, mortgage rates do good, and vice versa.

The reason behind this is that money managers either invest in stocks or bonds. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

The same applies for stocks. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise.

Bottom Line for 2010 - be prepared for higher mortgage costs.