Question: How are closing costs figured and how do we know if we're getting the best deal? For instance, friends of our purchased a home recently for $350k with closing costs of $4k. I was quoted $7.5 to $8.3k in closing costs on a $385k mortgage, but was told that number can be negotiated. What should we expect?

Answer: Comparing closing costs is like comparing snow flakes, no two closings are exactly alike.

Imagine that a home requires a $350,000 mortgage at 6 percent and one point. Will there be any seller "contributions" to offset closing expenses? Would you pay 6.125 percent and have the lender pay some of the closing expenses? Would you pay a higher rate in exchange for zero points, a "par" loan? Are you financing with an ARM or a fixed-rate loan? What day of the month is closing? Such issues, and others, can all impact closing cost totals.

As well, settlement taxes can vary by location, as can legal fees and other costs.

The best approach is to ask your broker or lender to recommend a settlement agent who can get the job done at the lowest possible cost.

Question: I currently have a home on Cape Cod that I've owned for two years. I'm moving to Vermont for work-related reasons and must decide whether to sell my Cape Cod property or rent it for a couple of years to build some additional equity.

The house is currently valued at $270,000 and is in a hot price range for first-time buyers apparently. On the flip side, from what I've been reading regarding home appreciation values in my area, Cape Cod, I could make a substantially higher profit by waiting another 1-2 years before selling. The average appreciation rate for this area has been 9 percent over the past several years.

Aside from the obvious potential downside of having renters, do you have any advice that might help me make this decision? Are there signs that the real estate market may crash within the next few years with the rise of interest rates and the national defecit?

Answer: That prices have risen in the past does not mean they will rise in the future. Prices could decline -- but that may not be a hardship for people who hold low-interest fixed-rate loans and have no interest in selling or refinancing. Moreover, there are some questions to ask before going further:

• If you rent the Cape Cod property, will the rent at least cover your costs?

• How will you manage a Cape Cod rental from Vermont?

• Given your income, debts and credit how much ability do you have to buy a second property?

• In the general case, you must reside in a property for two of the past five years to avoid capital gains taxes. Have you discussed the tax implications of renting with your tax professional?

• By any chance, is your Cape Cod home in a rent-control area? If yes, how will that impact your decision?

Question: I am considering investing in rental property. I am looking for some research information. Could you point me to some good resources for doing research on the pros and cons of investing in rental property?

Answer: You want to spend time meeting with local brokers -- people who physically work with nearby homes and who sell and manage the type of property you want to buy. The best way to find such specialists is to look at properties now available that would be good investment candidates.

You should also see what the local housing office has online -- forms, regulations, etc.

In many jurisdictions tax records can be found on the Internet -- but be aware that some local tax breaks which apply to owner-occupied homes may not apply to rentals.

Also, it would be wise to work with several professionals -- a broker, an attorney, a lender, a home inspector, a tax professional, etc.

Question: I am stuck between which is the best mortgage, a CODI , COSI or COFI? Which is most stable and least likely to go up? Is there a trend I should know about? I have a fixed 6.125 percent now and only 3 years into my loan of 252k. I may or may not be here for 5-10 years.

Answer: Let's start by explaining the abbreviations:

CODI -- The "Cost of Deposits Index" for the 11th District Federal Reserve Bank (San Francisco).

COSI -- The "Cost of Savings Index" based on the 11th District.

COFI -- The 11th District Cost of Funds Index reflects borrowing costs for credit unions and banks served by the 11th Federal Reserve District.

The view here is that it's best to have a loan rate tied to lender costs. Why? Do lenders want high costs? The COFI index has a good record of slow motion when rates rise or fall, a benefit for borrowers.

In addition to the index, you must also consider the "margin" -- the fixed amount added to the index each month. For instance, if the index rate is 1.8 percent and the margin is 2.5 percent, the rate would be 4.3 percent. If the index rises to 2.2 percent, the margin would still be 2.5 percent, but the rate would rise to 4.7 percent.

As this is written, 6.125 percent is as low or lower than new fixed-rate mortgages. And while converting to an adjustable-rate mortgage may have a lower cost up front, there is no guarantee that ARM rates will not rise in the future.

Have a real estate question? Send your inquiry to . Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here.

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Published: May 21, 2004

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