(Article from Consumer Reports Magazine, May 2005)

You may be surprised to hear that lender fees on conventional single-family-home mortgages have declined 63 percent from 1989 to January, according to the Federal Housing Finance Board. Nonetheless, when you add in taxes and fees that lenders pay to third parties, such as appraisers and credit bureaus, closing costs can add up to real money. According to a 2004 survey by Bankrate.com, the total cost on a $180,000 mortgage averaged $3,652.

Many borrowers are opting to fold closing costs into a slightly higher interest rate--in other words, financing them over the life of the loan instead of at closing, says Joseph McKenzie, deputy chief economist at the FHFB. Paying a higher interest rate over a number of years, however, significantly boosts costs.

Because closing costs are not standardized, they are hard to compare. Still, you should try to keep your costs to a minimum.

Be wary of low- or no-closing-cost claims. Most costs associated with closing are for legitimate services. If you're not paying closing costs up front, you're paying them in the form of a higher interest rate.

Avoid application fees. About 40 percent of lenders charge them. If your lender wants one, make sure that the fee is contingent on mortgage approval and closing.

Collect closing-cost estimates online. Many lenders post rough closing-cost estimates on their Internet sites in areas covering rate comparisons or prequalification. Compile a list of costs from several lenders to get a sense of the going rates for each item.

Know what you're in for. Lenders are obligated to provide a good-faith estimate of closing costs within three days of receiving your application. If a lender agrees to give you a GFE even before you apply, you may be able to compare costs with those of other lenders. The biggest lender fees listed in Bankrate.com's survey were for the mortgage broker or lender fees ($1,037), processing ($360), and underwriting ($253).

Challenge excessive add-ons. Lenders are known to mark up services provided by third parties. Fees can be high. Bankrate.com's survey included average charges of $317 for an appraisal, $451 for attorney, closing, or settlement fees and $718 for title insurance.

Shop for title insurance. In 40 states, title insurance premiums are regulated. In the others, you don't have to use the lender's title company, so shop for the best rate on an owner's policy. Find title companies serving your area on the Web site of the American Land Title Association at www.alta.org/search/state.cfm .