Closing Costs for Buying a Home Have Risen Along With Rates

A pricey housing market and higher interest rates have made it harder to afford a house, but related expenses known as closing costs also add to the home-buying challenge.

Typical loan closing costs when completing a home purchase — for items like loan origination fees, discount points, appraisal and credit report fees, and lender title insurance — rose almost 22 percent from 2021 to 2022, according to a report that the Consumer Financial Protection Bureau highlighted in a blog post last week.

Borrowers typically paid about $6,000 for such costs in 2022, up from about $4,900 in 2021. That was on top of a down payment and other costs.

The average monthly payment for a 30-year fixed-rate mortgage rose 46 percent, to $2,045 at the end of 2022 from $1,400 a year earlier, the bureau found. The median price of a single-family home in January was $383,500, up 5 percent from a year earlier, the National Association of Realtors reported.

Often, lenders simply add loan closing costs to the mortgage amount, increasing the borrower’s costs over time. Home buyers can pay closing costs out of pocket, but that may eat into their cash for a down payment and end up costing them more in other ways — such as higher premiums for private mortgage insurance, which protects the lender if you fail to pay. (Typically, a 20 percent down payment is needed to avoid mortgage insurance.)

One likely factor in higher closing costs, the bureau’s report said, was a rise in the use of discount points — optional fees that home buyers pay upfront to reduce the interest rate charged over the life of the loan. This is known as “buying down” the rate.