Closing costs in metropolitan Washington are lower than those in other areas, a study released recently by the Department of Housing and Urban Development indicates.

The study, analyzing how effective the 1974 Real Estate Settlement Practices Act has been in reducing closing costs, found that a higher-than-average consumer participation in selecting settlement service providers, and the decentralization of the industry here have minimized the price of property transfers.

Last year buyers and sellers in Washington paid an average of $1,680 in closing costs, minus brokers' commissions and taxes, for a $55,000 home. That represents 2.4 percent of the sales price and is significantly lower than the $1,960 settlement cost average paid in the eight markets HUD studied.

The other markets included Boston, Denver, Los Angeles, St. Louis, San Antonio, Seattle, and Jacksonville, Fla. Boston had the lowest total cost, at 2 percent of the sales price. Costs were highest in Jacksonville, at 6.3 percent.

Nearly 40 percent of the buyers surveyed did their own shopping for mortgage financing here and in the other cities.However, twice as many buyers tried to negotiate interest rates here (43 percent) as the study average (27 percent). In both cases only five percent of the negotiations produced a lower rate.

Most home loans were handled by savings and loan associations and mortgage banks throughout the cities surveyed. Over the last three years the concentration of business with one type of lender has fallen substantially, particularly in the Washington area.

Generally, business has been drawn away from the savings and loan associations by mortgage companies and employe credit unions. The speed and direction of changes in lending concentration here, "suggest a highly decentralized market," the study reported, and encourage price competition in loan servicing.

Lenders here have greater flexibility in selecting mortgage insurance companies than other cities. More than half of Washington's lenders hold master insurance policies with more than seven firms, compared with survey average of 31 percent.

Of the 42 percent of borrowers who purchase the policies -- a share that is higher than the survey mean -- only 9 percent were required by the lender to buy insurance from a particular firm. This compares favorably with the 25 percent of survey respondents who faced lender insurance requirements.

Still, most mortgage insurance sales result from referrals by lenders, real estate brokers or settlement attorneys. Only 9 percent of Washington home buyers selected their own insurers last year, less than half the study average.

In 83 percent of the cases where lenders recommended companies in which they had a financial interest, the buyers were told of that business relationship.

This far exceeds the survey mean of 35 percent. This type of self-serving referral has been criticized by independent insurers as anticompetitive and likely to increase premium costs.

More than 95 percent of real estate broker commissions here fell at or below six percent last year, compared with 44 percent in all eight areas.