Mortgage closing costs typically range from 2% to 5% of the value of the loan, according to Freddie Mac. Assuming a 10% downpayment on a $400,000 home purchase, that is an additional $7,200 to $18,000 a prospective homebuyer would need to come up with on top of downpayment costs.

Brendan McKay, chief advocacy officer of the Broker Action Coalition (BAC), a grassroots organization that advocates for the interests of mortgage brokers and homebuyers, said these additional upfront fees add to the ongoing housing affordability crisis.

“It impacts everyone, but it’s always going to disproportionately impact first-time homebuyers and people from underserved communities that have low homeownership [rates],” McKay told Scotsman Guide.

The BAC co-founder included costs related to title insurance, credit report pulls and verification of employment as areas where he believes reforms could improve homebuyer affordability.

‘People are being gouged’

Title insurance protects against financial loss stemming from defects in a property’s title. Lender’s title insurance is typically mandatory. Owner’s title insurance is optional but generally recommended.

“Someone’s home is likely their most valuable asset, and insuring the ownership of that home is absolutely necessary and critical,” McKay said. “But people are being gouged in the process.”

According to a 2024 analysis by the Consumer Financial Protection Bureau (CFPB), “title insurance premiums can be significant, and typically range from 0.5%-1.0% of the purchase price.”

A letter BAC sent to the CFPB in 2024 maintained that 70% to 85% of title insurance premiums are commissions paid to a title agent or settlement company. The BAC letter also claimed that title insurance costs are “too high based on the actual level of risk that the policies protect against,” citing a 2023 study by the National Association of Insurance Commissioners, which found that paid title insurance claims accounted for 4% of total premiums collected.

McKay advocated for additional oversight of the title insurance industry, either through legislation or increased regulation.

“A very small number of [title insurers] control an incredibly large percentage of the market, and there’s no price variation between one option and the other, which tells us that it does not appear to be a truly open market, and that’s problematic,” McKay said.

‘The only game in town’

Last month, Federal Housing Finance Agency Director Bill Pulte posted on social media that he was “not happy with FICO,” referring to Fair Issac Corp., creator of the industry-standard FICO score used to measure consumer credit risk. Pulte added that “American consumers must be respected” and that he may take action in response to recent FICO cost increases.

McKay said he was pleased that Pulte “put a spotlight” on FICO’s price hikes.

“They are a monopoly,” McKay said of FICO. “They are the only game in town, and they’re behaving as if they’re in a free market, and that’s wrong.” He added that he would like to see Pulte take a similar look at the three major credit bureaus — Experian, Equifax and TransUnion — whose data feeds into FICO scores.

McKay pointed out that while other closing costs are paid out only if a consumer actually becomes a homeowner, credit report fees are assessed even if the home purchase isn’t consummated. If a consumer shopped around with five different lenders, they could potentially be assessed five separate fees for credit pulls.

The BAC chief advocacy officer proposed a system where a person could go to one centralized website, pull their own credit report for a single fee, and share it with as many lenders as they choose to get preapproved for a mortgage.

‘Death by a thousand cuts’

McKay recalled that one of his first jobs in the mortgage industry involved verifying the employment status of borrowers. He would call the human resources department of the borrower’s employer and ask a few questions. The whole process took perhaps half a minute.

Today, McKay noted, most large employers outsource verification to third-party companies, and the cost for that service is typically passed through to the borrower. For example, The Work Number, an Equifax-owned employment verification provider, charges $64.95 per report for organizations that need to verify 250 applicants or fewer a year.

“Is this the biggest problem of all the things that we’re talking about? No. But this is death by a thousand cuts,” McKay said. “And I think a lot more attention needs to be paid to all this stuff, because the American consumer is the one paying for all of it at the end of the day.”