The cost of pulling credit reports could rise by up to 50% by 2026 – what’s driving the sharp rise

While it’s no news that housing costs continue to be high across the country, one aspect of the closing costs of a new home stands out because of its rising price: the credit report.

Rocket Mortgage reports that closing costs typically range from 3% to 6% of the total loan amount (1) – that’s $12,159 to $24,318 for a mortgage of $405,300, the median sales price of US homes according to data from the Federal Reserve (2).

As part of applying for a loan, lenders usually pull what is known as a “triple consolidation” report, which includes information from all three major credit institutions in the US The cost of this has increased between 40% to 50% in the past year, and the Mortgage Bankers Association reports that this is “the fourth consecutive year of dramatic price increases” (3).

Here’s why the value of the report adds obstacles to the already difficult costs of buying a home, and what you can do as a potential home buyer to ensure a full understanding of debt, mortgages and related costs.

A triple consolidation report gives potential lenders the ability to compare information from three reports against each other, ensuring they don’t miss important information (4). This can be an advantage to the home buyer if one of the reports shows a lower credit score than the other two.

The reports themselves are inexpensive – about $47.05, according to CNBC (5). However, reports must be drawn twice, at the beginning of the application and again before closing the loan. This means the cost can be closer to $100 for an individual, or $200 for a couple. On top of the many heavy costs, this is one extra line item that many experts say is unnecessary.

The Mortgage Bankers Association (MBA) points to the lack of competition in the credit score market as the root of the problem, and has asked the Federal Housing Finance Agency (FHFA) to allow lenders who are considering offering a loan to a customer with a credit score of over 700 the option to pull one (3) report. CNBC notes that in the event that the lender pulls the report but the buyer does not take out the mortgage, the lender must pay the costs (5).

“Burdening the mortgage system with these costs – unfettered by any market competition – has exacerbated ongoing housing affordability challenges,” wrote the MBA in their letter to the FHFA (3).

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In addition to your loan amount, which will be affected by your credit score and general creditworthiness, there are a variety of costs associated with buying a new home that are not reflected in the sticker price.

Bankrate reports that while some mortgage lenders will roll these costs into your loan, saving upfront can cost you more in the long run in the form of higher interest rates or larger loan principal (6). To get the best price for all the costs of your new home, you should be familiar with these fees and shop around to get the best deal:

• Application fees and credits for your loan application.

• The origination and underwriting fees for the loan, typically 0.5% of the loan amount according to Bankrate.

• Home inspection fees, which are often mandatory for your loan application to be approved.

• Appraisal fees are often also mandatory for lenders to ensure they are not offering more than the home is worth.

• Title fees are also typically 0.5% of the loan amount, and this process ensures that there are no encumbrances or liens on the title that could affect your purchase.

• A transfer tax is required in most states, although the amount varies. This includes transferring title from the seller to the buyer. For example, Smart Asset reports that New York state’s transfer tax is $2 per $500 of property value, while Colorado charges 0.01% (7).

Remember that closing costs are not chump change. If you put a 20% down payment on a $405,300 home, that’s $81,060, and your closing costs would be more than a quarter of that price. This may mean adding extra months or years to your savings timeline if you don’t want to face a longer and larger mortgage.

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Rocket Mortgage (1), (4); Federal Reserve (2); Mortgage Bankers Association (3); CNBC (5); Bank (6); Intellectual property (7)

This article provides information only and should not be construed as advice. Offered without warranty of any kind.