Hawaii's closing costs second highest in U.S.

A Bankrate.com survey shows local buyers pay 32 percent more than the national average

HOMEBUYERS participating in Hawaii's frenetic housing market are paying the second highest closing costs in the nation, according to a new survey released yesterday by Bankrate.com.

To get a $180,000 mortgage on a single-family home worth at least $225,000, the average Hawaii buyer spent $3,628 in mortgage-related fees -- that's 32 percent more than what the average buyer in the nation paid for the same size of loan. Nationally, average fees and title insurance totaled $2,748, without taking taxes into account.

Wyoming had the lowest mortgage-related fees and New York had the highest in Bankrate.com's 2005 survey, which surveyed nine to 15 lenders in each state, plus Washington, D.C., and asked them to estimate the closing costs for their largest cities.

The average buyer in Laramie, Wyo., would pay $2,101 in origination fees, title insurance and other closing costs. The average buyer in New York City would pay almost twice as much: $3,907 for the same size loan.

According to the Bankrate survey, origination costs, the fees that lenders control, didn't vary much from state to state, but fees paid for title insurance, settlement services and title searches accounted for most of the disparities.

Hawaii buyers, who often choose to pay more points, also paid higher appraisal and attorney fees and spent more than three times what the average buyer in the nation spent on pest inspections.

"It just costs more to do business in Hawaii," said Stephany Sofos, a real estate analyst and appraiser.

On average, Hawaii consumers paid about $511 for an appraisal on an $180,000 property, while nationwide the cost was more like $327.

Appraisal prices in Hawaii are at least 40 percent higher than the mainland because the process entails more service and is subject to more checks-and-balance types of requirements, Sofos said.

"Our values have gone up so fast in such a finite area that Hawaii has been declared the No. 1 fraud capital in the U.S.," Sofos said. "Everybody is watching our appraisals."

Conservatism in the Hawaii market also drives up closing fees, said Stephen Higa, president-elect of the Hawaii Association of Mortgage Brokers. Hawaii buyers are often predisposed to obtaining the lowest possible payment, even if it triggers higher up-front costs, he said.

"It's more common for people to choose points in Hawaii," Higa said. "I've been in the business for 25 years and I have a hard time getting people to buy the concept that they won't live in their one-bedroom condo on Piikoi forever."

While the general consensus among mortgage brokers, bankers and other lenders is that paradise comes with a price, consumers can reduce the amount they pay by shopping around, Sofos said.

The origination charges that lenders control such as fees for administration, application, document preparation, processing, tax service and underwriting can vary greatly, she said.

"Even though we have high closing costs, it's a very competitive market place," Sofos said, adding that there are 1,800 licensed mortgage brokers in the state.

"You can educate yourself," she said. "You can save money in junk fees and points. You can go out and work the system."