Junk Fees - How to Avoid Them
Junk fees are fees that a mortgage broker adds to a loan that are not specific to the actual loan costs. These fees represent charges the mortgage broker is charging for services they are providing. Some are legitimate and represent real costs to the mortgage broker. Some are simply ways to pad the bill and extract more cash from the buyer.
- Application fee
- Processing fee
- Underwriting fee
- Document preparation fee
- Settlement fee
- Lender’s attorney fee
- Bank inspection fee
- Notary fee
- Document review fee
- Origination fee
- Courier fee
- and many others
Some fees are certainly justified as the mortgage broker is performing a service and deserves to be compensated for it. But others really should be under a lump free - like the processing fee. For instance, the notary fee or the documentation review fee are in my opinion complete junk fees that don’t offer value to the customer. The processing fee should include the cost of a notary (who is most likely a staff member who gets paid whether or not there are documents to notarize) and the cost of a document review. After all, what are they doing with the processing fee if they are not processing your application and making sure all your documents are correct.
A big challenge with junk fees is that you may not know all of the ones a broker will hit you with until you are at the closing table. It can make it very difficult to negotiate any away. After all, if the mortgage broker and you both decide not to budge at the closing table, you ma not be buying that house.
With the market the way it is today, assuming you are credit worthy under the current tight mortgage standards, you actually have a bit of leverage though.
While money is definitely tight right now, a qualified buyer is golden in this period of lean times for mortgage brokers.
So if you are qualified for a mortgage, insist on a list of all fees at the very beginning of the lending process and question the broker about each fee. Any fees that don’t sound like they are giving you good value are points that you can negotiate. You should also get an agreement signed that states that the fees presented are all the fees that you are going to be charged at the closing. (The only exceptions should be prorated fees - like prorated interest and prorations for taxes and such that can only be set based on the actual day of the close.)
Not every lender will negotiate but by insisting on all the details up front, you can make the decision to do business with that lender or seek another mortgage broker while you still have time.
