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Lender "Junk Fees"
For the most part, lenders’ application fees are reasonable. But some
lenders have been getting creative with fees, warned attorney Howard Newman. Some
lenders will entice borrowers with a low application fee. They later make up for
this by charging “junk fees” that show up somewhere else as part of the closing
costs.
Closing costs are fees and charges tacked on to the mortgage over and beyond the interest
rate being quoted. They usually run between 6 and 8 percent of the mortgage amount
being borrowed. Closing costs include attorney fees, title insurance and points.
One point is equal to 1 percent of the mortgage amount borrowed and must be paid
upfront at the closing. Only with FHA loans (explained in Chapter 8 of this book)
can points be financed along with the rest of the mortgage. A complete list of
closing costs is detailed in Chapter 15 of the referenced book.
Junk fees came about because of the cut-throat competition created by the huge
number of lenders competing for mortgage business around the country, Paul Havemann
explained. Consumers care mostly about the rates and points and, when shopping
around, that’s what people compare, he said. A low application fee might be
quoted and what was once part of the fee thrown into closing cost fees. (When
business is slow, however, lenders seem to eliminate a number of these junk fees and
closing costs to make their loans more attractive and competitive. A number of
states have also been cracking down on what fees are called and what can be charged
upfront.)
A favorite fee of Havemann’s is the “document preparation fee.” This
fee can cost as much as several hundred dollars, he said, and is for nothing more than a
secretary typing up the loan’s paperwork.
Donald Henig, past president of the National Association of Mortgage Brokers, has seen
lenders charge $25 for a flood certification, where an independent agency checks to see if
a property is in a flood zone. The cost of the lender for this is roughly half that
amount.
This Homebuyers Tip was excerpted from:
J. K. Lasser’s Guide to Buying Your First Home, by Joe Catalano, J. K. Lasser
Institute, a division of Simon & Schuster, Inc., 1993
ISBN# 0671880667
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