If you are refinancing, avoid scheduling your closing for the beginning of the month. Why? Because that means there are several days worth of interest which you will either have to pay at closing or roll into the mortgage. It's hard enough to come up with the cash for closing. And you don't want to raise your mortgage any higher.
Mortgage Broker Fee: 1 percent to 5 percent of the loan amount
Your mortgage broker is entitled to make a commission for the work involved in finding you a loan. This fee is tax deductible. The amount is regulated by the government. In some states the percentage is not capped, but brokers are required to disclose their fees in writing and get the borrower's signature of approval. In one state, mortgage brokers cannot charge more than 8 percent of the loan amount. Find out what the rules are in your area.
Keep in mind, brokering loans is a competitive business, so most brokers charge well below the legal limit. If you have good credit, you will qualify for a "prime" loan, and you can expect to pay your mortgage broker 1 percent to 1.25 percent of the loan amount. If you have poor credit, you will be given a "sub-prime" loan and chances are your broker will charge 3 percent to 5 percent because finding you a loan takes more work. If the percentage is any higher, ask hard questions and shop around to see if you can get a better deal.
If you cannot afford to pay high closing costs, including the broker's fee, there is an alternative called a "yield spread premium." In this scenario, the broker pays some or all of your closing costs for you. In exchange, you pay a higher interest rate on the loan. The broker makes his money by charging the lender a fee. Lenders are willing to pay these broker fees because higher-interest rate loans bring them more money in the long run.
CAUTION: yield spread premium deals are only legitimate if you pay low or no closing costs in exchange for paying a higher interest rate. If you are paying a high interest rate and your closing costs are still high, that's illegal, and you may be a victim of predatory lending.
Closing Fee: $350 for a purchase (split between buyer and seller). $150-$350 for a refinance
Your closing is the meeting where you sign all the paperwork to finalize your loan and purchase the home. Closings can be conducted by title agents or by real estate attorneys who double as title agents. In some parts of the country they are called "escrow agents." The government does not regulate these professionals when it comes to fees. It's up to you to shop around and find the best rate. Don't automatically hire the title agent recommended by your Realtor or mortgage broker.
A "settlement" is the same thing as a "closing." It should not be an additional cost, but unscrupulous operators have been known to add it as a separate line item and double charge.
Abstract or Title Search: $150-$225
This fee is charged by the title agent to cover the cost of sending somebody to the courthouse to research the history of the property you want to buy. They look to see whether the seller really owns the property free and clear and has a right to sell it to you. Some title agents have somebody in-house who does this work. Others hire an outside company. If yours hires an outside company, as always, ask for a receipt.
Title Examination: $0-$400