For now, the best thing you can do is learn the lingo and be ready to fight. Here's a breakdown of the typical fees you will see on your closing cost bill, called a "HUD-1 settlement statement." I explain what the fees are actually for and how much they typically cost in the Washington, D.C., area, where I live. Keep in mind these are rough estimates. Lots of factors can make these fees higher or lower (like where you live, whether you're a first-time home buyer, and if you have poor credit). Understanding what the fees are for will help you bargain them down.
Loan Origination Fee: 1 percent of the purchase price
This is simply a way for the lender to make a bit of money up front. If you deal directly with a mortgage company, rather than with a mortgage broker, this is how the loan officer makes his money. The loan origination fee is another name for a "point" and it is tax deductible.
The "loan discount" refers to the "points" you pay to buy down your interest rate. If you choose to pay points, each point will be 1 percent of the loan amount. Take out a loan for $100,000 and one point will equal $1,000. As a general rule of thumb, for each point you pay, you buy down the interest rate by 0.25 percent. So, for example, you could pay zero points and get a 7.75 percent interest rate. Or you could pay three points and get a 7 percent interest rate. If you don't plan to keep the home long, points can be expensive for you. If you plan to stay put a long time, points begin to pay for themselves. If you are purchasing a house, points are tax deductible the year you take out the loan. If you are refinancing your house, you have to deduct the points over the life of the loan.
Underwriting Fee: $150-$325
Some lenders charge a fee to weigh the risk of doing business with you. Critics say this fee shouldn't exist, because underwriting is an integral part of what a lender does. It would be like a carpenter charging an extra fee for carrying his tools into your house. But lenders now routinely charge back-end fees like this so they can keep their interest rates low, which is how they attract customers. You may be able to negotiate a lower underwriting fee.
Document Preparation Fee: $75-$325
Lenders have to prepare several documents in the process of granting you a loan. Some charge for it. This is another fee often criticized by consumer advocates. You may be able to negotiate a lower fee.
Administrative Fee: $390-$550
This fee covers underwriting and document preparation. Some lenders lump the two together and call it their "administrative fee." Again, you may be able to negotiate.
Funding Fee/Wiring Fee: $0-$30
This fee is supposed to cover the cost of wiring your loan money to whomever is conducting your closing. Lenders never used to charge this fee. Critics say they still shouldn't because getting the money to you is part of their job. Try to get the lender to waive this fee.
Credit Report: $15-$60