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Mortgage Loans and Junk Fees


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TERMINOLOGY

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 the closing table. Some fees, such as title insurance and the cost of the property appraisal, aren’t controlled by the lender and are thus non-negotiable. Lender-controlled fees, however, may be argued down to more reasonable amounts.

The Good Faith Estimate and Fees

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. Unfortunately, the GFE is only an estimate. Some buyers arrive at closing expecting to pay the amount listed on the GFE only to discover that they owe much more. Closely scrutinizing the charges listed on the GFE, however, is the key to catching junk fees early in order to challenge them.

Junk Fees on the GFE

A junk fee is any charge that serves no purpose but to provide additional profit to the lender. For example, if your lender charges you a “sign-up fee” or a “translation fee,” you’ve been hit with a junk fee. On the same note, you should question fees that seem too high. A “document preparation fee” of $500 means you are paying your lender hundreds merely to print out your paperwork and organize it, while a “messenger fee” of $100 means your lender is charging you far too much for the cost of mailing documents--if you even have any documents that need to be mailed at all. High fees for simple services or activities are also considered junk fees.

In reality, you can negotiate any fee your lender assesses when processing your loan. Lenders are surprisingly amenable to reducing fees for borrowers who ask. This is because, for every borrower who questions a junk fee, there are several more who do not. Ask your loan officer to explain, in detail, every fee that you see on the GFE. If your loan officer can’t give you a satisfactory answer as to why the bank is charging you $200 to have your documents notarized, demand that the bank immediately remove the fee. If the loan officer refuses, find another lender who won’t attempt to cheat you with meaningless fees.

Junk Fees at Closing

When you arrive at closing, your lender knows that you have already committed to the loan. Thus, you may discover a few extra fees attached to your loan that weren’t listed on your initial GFE--junk fees.

You have the right to contest junk fees as soon as you are aware of their existence. Ask the lender exactly what each fee covers. Find out why specific fees were necessary when processing your loan but aren’t necessary with standard mortgage loans. If your loan officer informs you that everyone must pay the additional fees, you can point out that the fees were not listed on your GFE and that, if everyone pays them, they would be listed. Failure to list them would be intentionally misleading borrowers. Be prepared to walk away from closing if your loan officer won’t rescind the additional charges. In most cases, the loan officer would prefer to dispose of the junk fees than lose the deal.