DEAR BOB: My husband and I have been looking for a mortgage for our home purchase. Although we've been reading your articles for about a year, we still find ourselves wondering what real costs a mortgage company can charge and what are just money-makers for the brokers.

We recently received a "good faith estimate" from a mortgage broker that contains these fees: tax service contract, $85; underwriting review, $450; processing fee, $395; document preparation fee, $175; flood certification, $25; recording fee, $65; wire fee, $35; closing review-courier, $195; certification, $295; warehouse fee, $65; appraisal fee, $450; and credit report, $55; all for a total of $2,290. Under "title charges," they list a settlement-closing fee, $645, and $1,473 for title insurance.

Which of these are "garbage fees" and which are real? Based on other lenders I have contacted, these fees seem extravagant. Please help.--Finest B.

DEAR FINEST: Congratulations on questioning those fees. Home loan lenders probably attend a "garbage fee training school" to learn how to create and inflate borrower fees. However, I notice you did not include a customary loan fee, such as 1 to 2 percent of the amount borrowed. Many lenders charge loan fees, but not all the junk fees on your estimate.

The $85 tax service contract fee is to monitor your property tax payments since you wisely won't be having an escrow impound account. Last year I paid a $65 tax service fee on my refinance, so your $85 fee might be inflated.

The $450 underwriting review, $395 processing fee, $175 document preparation fee, $195 closing review-courier fee, $295 certification fee and $65 warehouse fee are pure junk or garbage profit fees for the mortgage broker. The $450 appraisal fee is $100 to $150 too high, unless the house is huge; and the $55 credit report costs the lender much less.

The $645 settlement or closing fee, often called an escrow fee, and the $1,473 title insurance fee, unless you can get the seller to pay, should be paid directly to the third-party providers and are really not part of your mortgage costs.

Mortgage brokers obviously need to earn a profit, but rather than charge inflated junk or garbage fees, a better procedure is to charge a loan fee of 1 percent to 2 percent, which is tax-deductible for you on a home acquisition mortgage, but not on a refinanced mortgage.

Be sure to ask the mortgage broker about the exact amount the actual lender is paying the broker to process the loan, which raises the broker's true fees.

Shop around among at least a half-dozen mortgage lenders and compare their interest rates and fees. The lowest interest rate loan often has the highest junk fees. By the way, junk fees are negotiable, so don't hesitate to ask the lender to reduce the high fees that the lender doesn't have to pay to third parties.

DEAR BOB: I sold my rental property a few years ago and carried back the mortgage for my buyers. Now they are selling the property and paying off my mortgage. But I will be paying a heavy capital gain tax on this installment sale mortgage. Is it possible to do an Internal Revenue Code 1031 tax-deferred exchange and transfer the proceeds into acquiring a rental property to avoid the tax?--Rose D.

DEAR ROSE: An Internal Revenue Code 1031 tax-deferred exchange can take place only at the time you sell rental, business or investment property. You could have made an immediate exchange or a Starker delayed exchange, but you cannot now defer capital gain tax by using the mortgage payoff proceeds to acquire a rental property.

However, you should be glad that you sold your property several years ago and deferred the capital gain tax by carrying back the mortgage since the federal capital gain tax rates have declined to 20 percent (15 percent if you are in the lowest tax bracket). Consult your tax adviser for details.

DEAR BOB: I lent my daughter $10,000 at 8 percent interest to be paid off in seven years. Her monthly payment to me was to be $95.57. She paid the $95, but not the 57 cents each month. Now she thinks she has paid off my loan. I told her she never paid me any interest. Am I correct that since she didn't pay off my loan in seven years, I now own her house if she doesn't pay me the balance?--Maizie C.

DEAR MAIZIE: Consult a local real estate lawyer. Was the promissory note signed by your daughter secured by a mortgage or deed of trust recorded against her house? If not, then you have an unsecured note and cannot foreclose on her house for nonpayment.

But somebody is mixed up about the monthly payment amount. According to my calculator, to amortize a $10,000 loan at 8 percent in seven years requires a monthly payment of $155.90. The "interest only" monthly payment would be $66.66. That $95.57 payment would only partially amortize the loan, leaving a balloon payment due after seven years. If you both cooperate, I'm sure you can avoid an adverse result.

DEAR BOB: My wife and I own a rental house. If we ask our tenants to move out and use the house as our primary residence for 24 months, can we qualify for that $500,000 home-sale tax exemption? We also plan to keep our present home because it's closer to work. Can we claim primary residence on the rental house even if we don't spend a lot of time there? What does the IRS look for when establishing primary residency?--Mr. R.Q.

DEAR MR. R.Q.: If you are audited on the profitable sale of that rental house, the IRS wants to be sure that you and your wife lived there an "aggregate" of two years during the past five years before its sale, as required by Internal Revenue Code 121.

Indications of primary residence include paid utility bills, voter registration, driver's licenses, school attendance for your children and other primary-residence evidence. Renting out your current residence would also prove you actually moved into the rental house for two years before its sale. For further details, consult your tax adviser.

DEAR BOB: In September 1998 we bought a mobile home for $55,000. On April 3 we sold our old "big home" for $127,000. I know we can take the $500,000 exemption on that sale since we lived there for 20 years. But if we sell the mobile home after living in it for a year, can we also use the $500,000 exemption on its sale although we only paid $55,000 for it?--Mrs. E.B.

DEAR MRS. E.B.: No. Internal Revenue Code 121 can be used only once every two years. If you profitably sell your mobile home after living in it for only a year, since you used your $500,000 exemption on the September 1998 profitable sale of your "big home," the mobile home profit will be taxed as a capital gain. Ask your tax adviser for full details.

DEAR BOB: We live in a stone house that's more than 200 years old, and we're thinking about selling it. Five years ago, we installed a new roof and had the wiring updated. Now we would like to sell it "as is." Can we do that?

Even though it needs a bit of "cosmetic surgery," the house is in pretty good shape, and the buyer can move right in. We don't want to do any repairs, and feel the buyer can do the decorating to his or her taste. How should we do this so the buyer can't sue us later?--Lorraine and Arthur M.

DEAR LORRAINE AND ARTHUR: Yes, you can sell your home "as is." However, to avoid liability to your buyer, you must disclose in writing all material defects of which you are aware. "As is" means that you will not pay to repair known defects.

"As is" home sales are made every day. Many real estate lawyers and real estate agents recommend selling "as is." Others do not. The primary reason is that some buyers are wary of buying an "as is" home, often resulting in a lower sales price.

For your protection, you should insist that the buyers include a professional inspection contingency clause in their purchase offer. Better yet, before you list your house for sale, hire your own professional inspector so you are fully aware of your home's defects. For more details, consult a local real estate lawyer.

DEAR BOB: How can we figure the equal monthly payment to amortize a mortgage loan? What is the formula? I have asked several real estate agents and bankers. They don't seem to know and, instead, show me a loan payment schedule book.--Ying C.

DEAR YING: I don't know the formula either, if there is one. I recall taking real estate investment courses, before the days of pocket calculators, where we had to calculate month-by-month the allocation of interest and principal to pay off a mortgage.

But I never did learn if there is a formula because of variables such as the loan term, the interest rate, the declining portion of each payment for interest and the increasing portion reducing the principal. If there is a formula, some brilliant reader will let us know.

DEAR BOB: My husband and I just finished adding a den and second bathroom to our house. Friends have made many positive comments about his work. Now he wants to quit his job and buy run-down houses in good locations, fix them up and sell them. We plan to sell our house and use part of our profits to get us started. Is this a wise thing to do, and is it very profitable?--Becky S.

DEAR BECKY: You and your husband will become known as "serial home sellers." Buying fixer-upper houses and living in them for at least 24 months before selling can become a very profitable tax-free business, thanks to Internal Revenue Code 121.

Of course, plan to make only profitable improvements. Examples include painting, landscaping, repairing, adding new light fixtures and installing second bathrooms. These improvements usually add far more value than they cost. But avoid unprofitable improvements, such as new roofs, foundation repairs, swimming pools and room additions, since they don't add more value than their cost.

Be sure you know what you're doing before getting into the home fix-up business full time. You'll need income to live on. Also, if you have to get new mortgages and/or loans to finance the improvements, it will be tough to get approved without jobs. I suggest your husband keep his job and confine his fix-up activity to weekends and vacations.

DEAR BOB: In December 1998, I paid off my home's mortgage. Six months have passed, but my lender still hasn't sent me the paperwork. When I call, I get different answers such as, "The papers are still at the county auditor's office," "The paperwork is in California" and "They are being finalized as we speak, and you should get them within a week or 10 days."

That was nearly a month ago. What should I do? Do I need to hire a lawyer? Should I contact the state attorney general for help? The lender made thousands of interest dollars from me over 20 years, and I expected better treatment. What should I do?--Norma T.

DEAR NORMA: Mortgage payoff delays are often not the lender's fault. Depending on the state and county where your property is located, getting the recorded documents back can often take months. Just last week, I was talking with a Minnesota title officer who said getting recorded documents returned often takes six months in that state.

The big problem is that mortgage lenders have no financial incentive to complete mortgage payoffs quickly. Your interest payments have stopped. But now you need that mortgage cleared from your title. Keep up the pressure on your lender.

DEAR BOB: More than two years ago, my wife and I bought our house for 5 percent down with private mortgage insurance from a major nationwide lender. Since then, two other units in our building have sold for much more than we paid. We contacted our lender to cancel our PMI, and we paid the appraisal fee.

When I called, the lender's phone rep said we were $1,000 short. I asked for a copy of the appraisal that I paid for but have not received it. It seems to me the appraiser knew the amount the lender needed to keep profiting from our PMI. Since then, I've been told that if I want another appraiser, he must be on the lender's "approved list." What should we do?--Kirby D.

DEAR KIRBY: Since you paid for the appraisal, you are entitled to a copy. Be persistent. It is customary for lenders to arrange the appraisal or require the appraiser to be on the lender's approved list. I agree that it is odd the appraisal was $1,000 short of the amount you need to cancel your expensive PMI premiums. Keep trying. Paying for another appraisal could be money well spent, but be sure the lender agrees to send you a copy.

Readers with questions should write Robert J. Bruss at P.O. Box 280038, San Francisco, Calif. 94128.{copy} 1999, Tribune Media Services Inc.