Yes, they can vary minimally, but more importantly, closing costs and lender restrictions can be very state specific. For instance, title fees and state taxes in Florida are significantly higher than in Illinois or Missouri. Some lenders still have overlays (restrictions) on loans on certain property types in some states, like condos in AZ or FL.
Mortgage rates vary from state to state for several reasons.
First, there are economic factors that make lending riskier in some areas than others — Nevada, Florida, Michigan and Arizona went through this recently. Borrowers in those states had to come in with larger down payments, higher credit scores and additional fees.
Second, there are state laws that make lending more expensive in some states than others — states with recourse, for example, allow lenders to recover additional money from borrowers who default if the foreclosure sale doesn’t net enough to pay off the mortgage. This is more desirable for lenders. States without recourse make it riskier and more costly for mortgage lenders, and so they pass on that cost in the form of higher rates.
Then, there is the amount of competition for business. When there are more lenders competing for business, costs go down. Some states like Hawaii make it very difficult for lenders to come in and compete for business. Consequently, borrowers there pay a lot more.
The types of mortgages preferred by borrowers in a state also influence average costs — for example, in heavily rural states, more homeowners might get USDA mortgages, and states with more military bases might have more VA loans. These loans often have lower APRs because there are no risk-based pricing adjustments, mortgage insurance is either not required (VA) or very low (USDA), and with USDA loans people with lower incomes can qualify for lower subsidized interest rates. On the other hand, expensive markets attract more jumbo financing, which is usually more costly.
The bottom line? Studies show that rates can vary by .25% to .50% between lenders on any given day, and that’s a lot more than the relatively minor differences between average rates in different states. The only way to know if your offer is a good one is to get several mortgage quotes from competing lenders. In addition, a Stanford University study found that getting four mortgage quotes instead of one or two saved people a median of $2,664 on a $200,000 mortgage.
That’s money you shouldn’t be leaving on the table no matter where you live.