Lender JUNK FEES - Buyers need to be on alert !
If you plan on applying for a mortgage, you should be on the lookout for “junk fees”. Your lender’s junk fees may leave you paying much more than necessary at closing.
When you apply for a mortgage loan, your lender will give you a Good Faith Estimate (GFE). The GFE provides you with an itemized list of the fees your lender intends to charge to process your loan and close the deal. Each fee should be clearly listed on your GFE.
Closely scrutinizing the charges listed on the GFE is the key to catching junk fees early in order to challenge and negotiate them.
A general consensus states that most buyers go through a mortgage loan process maybe 1-to-3 times in a lifetime. So it is simple to see and fully understood that within the excitement of buying a home - it is easy for a buyer to overlook questionable fees that a lender/loan originator may be charging the buyer/applicant.
Aside from the amount of the mortgage, there will be other detailed expenses in the overall "Good Faith Closing Costs" estimate. There usually is some line-item detailed expenses that a buyer/applicant can question the lender about. Some members within the Real Estate industry call questionable closing costs "junk fees", "garbage fees" and/or "profit fees" because lenders whose practice is to charge these fees are indeed seeking to "pad" their profit.
Is this practice legal? Yes as long as the fees are for "goods and services", are itemized and not hidden within other fees that truly are necessary to process a loan. Keep-in-mind that federal law prohibits lenders from charging fees for non-existent goods or services.
Are these so-called “junk fees” necessary? Well it is all relative because a lender is in the business of making a profit. The lender will be quick to tell you that the stated fee is for a "service" relative to the loan process. But what needs to be known is that the same fee maybe called something else in another line-item... this is called "double dipping" and this is what the buyer needs to be aware of.
Again, as a buyer, you do not go through a Mortgage Loan process often enough to quickly identify these "junk fees". Therefore, what is important is for the buyer to hold-off on signing any given Good Faith Settlement Statement without studying the fees contained within. Pay attention to these questionable fees/costs and always know that you have the right to question any itemized expense. If you are inclined to ask, then ask something like ...Why are you charging so much? or Why are you charging this at all?
In a lot of cases: If a fee is questioned, then most always, those fees can be negotiated and are either reduced and/or completely taken-off as a Closing Cost expense. The act of questioning fees can possibly reduce your overall Closing Costs by a few hundred dollars or more.
Remember, federal law prohibits lenders from charging fees for non-existent goods or services, as well as unreasonable "markups" of settlement expenses when no additional services are rendered.
The numbers within the Good Faith estimate that lenders initially give the buyer are not necessarily "set in stone". So it is up to you/buyer to know how to identify "junk fees", question them and see if they can be reduced or completely done-away-with. In doing so, this will prove to be very valuable to you.
Below is a list of the more common “junk fees”. My intent is to give you an idea of how they may appear on a Good Faith statement – this so you can be ready to identify, question and negotiate them.
Application Fee: Lenders who want to charge this fee ought to be ashamed of themselves. No lender that wants your business should ever charge this fee. What they are saying is that you are to pay a sum amount to simply fill out the application. This is along the same lines to a hamburger and/or a taco stand charging you to place your order.
Commitment Fee: This odd fee is supposedly the cost of processing the “loan terms-and-conditions” paperwork. In other words, it is a fee charged by a lender to a buyer/borrower to compensate the lender for its commitment to lend. Really? If a lender is in the business to lend, then ask why are they charging this fee?
Document Preparation Fee: This is a classic junk fee that nobody should ever pay. The process of printing and preparing paperwork is an inherent part of the lender’s job.
Fee: If by chance the Good Faith estimate just says “fee”, then for sure ask for an explanation from the lender.
Lender Fee: These fees are borne by the lender during the closing process and may include application fees, recording fees, courier fees, notary fees etc. If this number appears excessive to you, ask for a detailed breakdown of all costs involved with this fee. Then after you get the breakdown, make sure the lender is not double-dipping by rolling-in other similar and/or same charges into this “Lender Fee”. Due diligence on your part usually makes this one of the more negotiable fees.
Re-conveyance Verification Fee: A fee charged to have someone verify that the bank holding the Seller’s loan actually re-conveys the title after Buyer’s lender “pay-off”.
Express Mail (messenger) Fee: Many in the industry look at this as another junk fee that should be inherent to the lender’s job. This is also sometimes listed as a Postage or Courier Fee. For example if this fee is $100, then that means your lender is charging you far too much for the cost of mailing documents – have your lender work with you on this one.
Warehouse Fee: A lender will tell you this is their cost of temporarily holding the loan before it’s sold on the secondary mortgage market… this one is very negotiable !
Mortgage Rate lock fee: This is agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate. Usually this fee is paid up-front by the buyer/applicant. Depending on the lender, this fee can be refundable or non-refundable… It does not hurt to try to negotiate this fee.
The following is what are considered to be “legitimate fees” by any party associated with the lending process and are necessary to complete the transaction.
• Origination Fee • Appraisal • Credit report
• Escrow Fee • Title search • Title Insurance
• Survey Fee • Notary • Recording Fees
• Prepaid Interest • Property Tax • Transfer Taxes
• Flood Certification • Underwriting Fee • Document recording
• VA Funding Fee • FHA’s “Up-Front Mortgage Insurance Premium”
• Private Mortgage Insurance (PMI) • Homeowners’ Insurance
• Escrow Deposit for Property Taxes & Mortgage Insurance
As a Broker/Realtor®, one of my due diligence aspects is to protect my clients from anything such as unnecessary costs that are not in their best financial interest. Therefore this article is solely for the purpose of helping buyers to become more aware, alert and decide what action to take when they are faced with these mortgage loan “junk fees” that could possibly be unnecessary and/or at the least negotiable.
* This article is informational purposed only. And let it be known that I harbor nothing negative nor any "ill will" towards mortgage lenders. Personally as a REALTOR®, I love Lenders, they help Buyers get mortgage financing and make "dreams come true"... we all should love lenders because without them how are you and/or we going to finance our homes? ... An "old saying" is, I do not have a rich uncle to finance me, do you? :)
Thank you for stopping by,
Oscar Castillo : BROKER - REALTOR® (San Diego, CA)
Please contact us if you have any questions or comments.