Avoiding Mortgage Junk Fees. If you look down your long, long list of closing costs at your lender’s office, you probably won’t find one labeled “junk.”
That’s because lenders don’t like to admit that some of the charges they’re passing off as “necessary’ are really “junk”.
Actually, they aren’t junk to the lender because they represent an important stream of profit. But we certainly don’t need those added fees. Junk fees are a good place to negotiate with the lender for a better deal. But the time to negotiate is before you sign the loan application. Once you’ve signed, you’ve sealed your deal for better or worse.
The lender does have legitimate costs that are passed along to you, the borrower, in the form of closing costs and fees; however, by the time you see the fees they’ve been inflated. For example, if the lender has an electronic appraisal done on your property, it might cost him $25, but he’ll charge you $125.
Lenders are required to give you a good faith estimate of your closing costs when you first contact them, but it’s not required to be completely accurate! So they often give a lower estimate to get your business, and then increase fees once you have committed. Thankfully, new mortgage legislation has limited the amount by which your fees can change once disclosed.
Inflated costs are just one example of junk fees and costs that get built into your loan without you knowing it. A more egregious example is the charges for made-up things, like “underwriting fees” or “document preparation.”
• A lender will tell you an underwriting fee is the cost that they incur to underwrite your loan. They need someone to go through your whole package to make sure it complies with secondary underwriting requirements.
But an underwriting fee is purely a junk fee because the whole point of applying for the loan is so that it gets underwritten. You’re being charged an extra fee on top of all the other fees to do exactly the same thing.
• Another common junk fee is the cost for document preparation. Basically, computer programs print all the necessary paperwork at the touch of a button. Someone will key in the necessary information. But again, underwriting the loan and preparing the paperwork is within the general scope of, well, getting the loan approved for you.
The problem with junk fees is that they all sound so legitimate. It’s difficult to tell what’s real and what isn’t. As the borrower, you’re entitled to an explanation of each and every charge in a way you can understand. If the lender throws some jargon your way, stop and ask for a detailed explanation.
To avoid the problem of bait and switch, talk to several lenders, and don’t just compare interest rates — compare fees.
About the Author: Millie Gil has been a successful Florida Licensed Real Estate agent for over 25 years. Millie is Vice President of Bold Real Estate Group, a boutique agency committed to concierge personalized service for discerning buyers, sellers and renters of residential and commercial properties. For real estate service and information please forward your request to communityinfo@comcast.net
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