For four straight years, the Colorado housing market has been on fire. Fueled to a large degree by an entirely new industry – legalized marijuana – housing prices have increased 50% from their 2012 low. The new industry continues to spur job growth and attract transplants, creating a butterfly effect throughout the rest of the economy. The new economic boost comes on top of a burgeoning technology industry that is one of the most robust in the country. Typical of a surging housing market, inventory is quickly shrinking, with the average time on the market falling to less than 30 days. That is a challenging market for homebuyers who find themselves chasing increasing values on disappearing homes. When a home does become available, homebuyers must contend with paying closing costs on their purchases, which are among the highest in the country. Closing costs can add thousands of dollars to the cost of a home, so Colorado homebuyers would be well-served to understand what goes into these costs.

Average Closing Costs in Colorado

Colorado homebuyers can expect to pay 3 to 5% of their home’s value in closing costs, so the actual amount paid is based largely on the value of the home. The following average closing costs are based on the purchase of a home valued at $200,000, with a 20% down payment. In Colorado, homebuyers pay an average of $1,192 for lender fees, and $719 for third-party fees for total average closing costs of $1,910. That is well above the national average of $1,847 and is the 12th highest of all states. Neighboring states Utah and Wyoming have some of the nation's lowest closing costs, with $1,700 each. Hawaii, Connecticut and New Jersey have the nation's highest closing costs, with more than $2,000 each.

As for the average cost of individual items, Colorado homebuyers pay $1,134 for origination fees, $434 for a home appraisal, $388 for settlement costs, $435 for a survey, $76 for tax services, $125 for pest inspection, $100 for courier services, $21 for a credit report and $10 for flood certification. Title insurance fees are excluded from these averages because they are difficult to estimate. Prepaid items, such as property taxes and homeowners insurance, are also not included.

What Goes Into Closing Costs?

Closing costs in Colorado can vary among lenders and are based on the type and size of property. However, these are the more common closing costs homebuyers may find in a good faith estimate provided by lenders.

Loan origination or lender fees: Buyers pay their lender an all-inclusive fee for processing the loan, which amounts to around 1% of the home’s value. For these fees, percentages translate into points, with 1% equaling one point. In exchange for a lower loan interest rate, buyers may add points to their closing costs. They can also roll their points into the loan to reduce out-of-pocket costs.

Appraisal fee: To verify that the home’s value is worth at least the sale price, lenders order an independent appraisal of the property. Lenders also want to ensure that the sale price is reasonable compared to other, similar properties in the area.

Settlement/closing fee: All of the legal aspects of settling escrow and closing the sale are handled by a title company. In Colorado, buyers are not required to hire their own attorney for settlement review, but if they do, it is at their own expense, outside of closing costs.

Tax services: In Colorado, tax liens take precedence over first mortgages in the event of a default. Depending on the amount of the down payment and the value of the home, some lenders may set up a property tax escrow account.

Title Insurance: The homebuyer is required to buy a title insurance policy on the lender to protect it against any title defects that could threaten its position as the top lien holder. The seller is required to purchase title insurance on the buyer to guarantee a clear title on the property.

Survey: On some properties, lenders may require a survey to ensure the integrity of the property lines. This is done to avoid any property line issues that might arise.

Hawaii (HI): Average Closing Costs

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