Junk Fees

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Junk fees are cost items that spruce up at the closing of a loan which the borrower was not informed of beforehand.

In a way, these expenses are the hidden costs items that everybody warns just about anybody about.

They are never expressed as a percentage of the loan like points. But are instead quoted at a dollar amount.

It is tempting to classify any cost item of a mortgage to be junk.

But unless you are someone who feels that the world owes you a living, you’d probably agree that some of the components that make up total mortgage costs are fair.

What are not considered junk fees?

Before we list down junk fee items, it is important to know what are not under that category.

Interest rate

The interest rate on a home loan is the standard “price” that consumers generally understands it as.

This is even though people are generally aware these days of other settlement expense items associated with the closing of a loan.

The good news is that more and more consumers are getting tuned into these types of misleading pricing on loans.

Points

Like interest rates, points are grouped as part of the cost of credit. They are after all, tax deductible.

Thus, it can’t be considered as junk.

Doing so will be like telling a Uber driver that his expenses on gas are junk fees.

Points have an inverse relationship with interest rates.

This means that when a borrower is willing to take on a higher interest, the least he can expect to negotiate out of it is lower points.

Origination

The is still an ongoing debate regarding whether origination fees are junk or not.

Origination fees, expressed as a percentage of the loan amount, concerns the work that the originator has to put in to originate the loan.

This makes it appear to fall under the same umbrella as things like processing or administrative charges. Both of which are clearly consolidated as junk fees.

But as it is currently in practice, it is not a junk fee item.

Sometimes lenders are willing to waive this in order to close a deal.

This means that if the originator is a third party, the lender would pay them out of their own pockets.

Third party service charges

As a lot of necessary third party service providers are employed to close a real estate transaction, third party fees are essential.

Some of which include:

While the question of whether lender-controlled third party fees are too excessive given that borrowers don’t have a choice in their selection, because these services are essential, they are considered standard cost items.

How fairly are they priced is another matter altogether.

Independent third party fees are also essential services. The difference is that borrowers have more freedom to appoint the service providers for themselves.

Others

Other miscellaneous cost items that are not junk and reported separately include:

Junk fee items

Junk fees are always expressed in dollar amounts that are not tied to the amount of funds approved or disbursed.

And borrowers often don’t pay attention to them until the time comes to close a home loan.

By this time, an eagerness to close at this final stage makes borrowers more vulnerable to accepting them without objections.

Regulators have play a part in trying to protect consumers from such situations by introducing the loan estimate, closing disclosure, and GFE.

However, disclosing itemized information on these fees don’t automatically justify them.

Here are just 20 of them.

  • Application fees
  • Processing fees
  • Administrative fees
  • Courier fee
  • Notary fees
  • Overnight fee
  • Document preparation fees
  • Bank inspection fees
  • Account opening fee
  • Underwriting fee
  • Automated underwriting fee
  • Mailing fee
  • Assumption fee
  • Research fee
  • Consultation fee
  • Broker fee
  • Funding fee
  • Loan service fee
  • Verification fee
  • Email fee
  • etc

It might be shocking to many that the extended list above is not comprehensive.

Yes, there are a multitude of other possible items that lenders can print on this list and expect to be paid accordingly.

Yet if borrowers take a moment to scrutinize the nature of these cost items, it’s not far fetched to suggest that they are ridiculous at best.

It’s like buying a refrigerator from Amazon and then be charged a bandwidth fee, a hosting fee, writer fee, design fee, social media management fee, etc.

It’s more like a last ditch attempt by lenders to throw in any extra revenue they can milk from a customer while the buying temperature is hot.

Maybe they know this… which is why junk fees are the most commonly waives mortgage cost items when borrowers negotiate hard enough.

Are junk fees really junk?

It must be said that expenses that are categorized as junk by consumers. No lender would label their own charges as such.

The truth is that when we observe the itemized details of these charges, some of us might appreciate that there are indeed significant operating costs incurred by lenders to finance real estate transactions and to refinance loans.

The real reason why these costs are perceived as junk is not that these services should be provided free of charge by lenders.

It’s more about how overpriced they are and the manner in which borrowers find out about them.

That’s the real source of displeasure.

It’s as if lenders try to stealthily sneak them into the invoice and hope that borrowers just charge the whole bill to their credit cards without going through them meticulously.

While some experts might advice borrowers to somewhat ignore junk fees and focus on interest rates and points as these two are the main components of a loan, don’t forget that junk fees can take up a significant portion of the total mortgage costs.

And the smaller the loan amount, the more material these seemingly negligible cost items can turn out to be.

Finally, don’t let junk fees distract you from real work involved with mortgage shopping. There are a lot more to stress yourself over when seeking a good mortgage.