 Home Buyers
Tips Archive
Junk Fees
For the most part, lender’s 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 onto
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) can points be financed along with the rest of the mortgage.
A complete list of closing costs is detailed in Chapter 15.
Junk fees came about because of the cut-throat
competition created by the huge number of lenders competing for mortgage business around
the country, Paulk 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 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# 0-671-88066-7
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