Closing costs vary based on lender or broker, mortgage program, down payment, and interest rate. Closing costs typically consist of three different components: points or loan fees, closing costs, and prepaid items.
Points or Lender Fees
These are charges that are paid directly to your mortgage lender or broker. They may include origination or discount "points," the price you are charged for the interest rate you've chosen. One point equals one percent of the loan amount. Some lenders automatically charge 1% origination.
Additional points may be paid to buy a lower interest rate. It also works the other way around. A lender may be able to offer a credit toward closing costs in exchange for a higher interest rate. (Ever wonder how lenders are able to offer "no cost" refinances?)
Beware! Some lenders may quote low interest rates with a high cost! In the advertisement below, a 3.375% interest rate with 3.611% in points equals a cost of $9,389 on a $260,000 loan. Be sure to read the fine print!
Other charges that are paid directly to your mortgage lender or broker include application, underwriting, and processing fees.
When comparing closing costs between different lenders, points and lender fees are the most important charges to compare. Every other fee you are charged should not vary considerably from lender to lender. Although the initial estimates may be different, the charges should be the same at closing.
Closing costs include charges that are paid to third parties. They include fees for the appraisal, credit report, flood certification, title insurance, escrow services, and recording. While different lenders may estimate different amounts for each of these, ultimately the price is determined by the third party. And it shouldn't matter which lender you choose. The title company doesn't charge Lender A one amount and Lender B a different amount.
Prepaid items include interest from the day you close through the end of the month, mortgage insurance (if applicable), and funds required to establish an impound account for paying homeowner's insurance and property taxes. Just like closing costs, prepaid items should not vary from lender to lender (even though they may estimate differently). For instance, your charges for homeowner's insurance are determined by the agent, company, and policy you choose - not the lender you choose.
Make sure you're comparing apples to apples! The price paid (in points) for a particular mortgage interest rate changes every day. A quote from Lender A on Monday can't be compared to a quote from Lender B on Wednesday!
And don't be afraid to negotiate! I tell my clients to take one morning and call each of the lenders they'd consider working with. Get the best quote in writing and bring it to me. I can almost always meet it or beat it. A quote from a competitor gives me the ammunition I need to obtain the best interest rate and price possible from my manager.