What are Junk Fees?

Jim B.

Junk fees are questionable charges from the lender to the borrower in a mortgage loan. These fees, also known as garbage fees, come in the form of actual dollars instead of points on the mortgage. After burying the junk fees in the mortgage agreement, lenders rely on the borrower's willingness to close the deal to get these fees paid. Common types of such fees include charges for underwriting, document preparation, loan applications, and many others that are either completely unnecessary or elevated beyond their actual cost.

Man climbing a rope
Man climbing a rope

Many people applying for a mortgage loan concentrate on the percentage on the loan, also known as the points, when they negotiate with a lender. What they often fail to take into account are the hidden fees within the mortgage document that can add up quickly and be a considerable financial burden. These fees are known as the junk fees, and the borrower has no way of avoiding them once the document is signed.

Borrowers need to be aware of junk fees and realize that they have the right in the negotiation process to ask the lender exactly what each of these fees represents. Some of the fees are legitimate, such as the fee that the lender incurs for doing a credit check on the borrower, which is then in turn passed along to the lender. If other fees strike the borrower as unfair and seem to be a violation of the good faith estimate originally provided by the lender, he or she should be ready to renegotiate or even check the competition for a more reasonable deal.

In some cases, junk fees may be entirely fabricated by the lender. For example, a lender may charge the borrower underwriting fees, claiming that they have to pay for a third party to approve the loan, even though the loan is essentially unimpeachable once the agreement is reached. Another such fee is a charge for document preparation, which takes just moments for a lender to achieve via a computer, but may be represented to the borrower as a hefty expense.

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Sometimes the fees are for actual tasks that the lender performs, but they are then elevated well beyond actual worth. For example, a lender does actually have to conduct an appraisal on the home in question to estimate its worth. The lender can make an electronic appraisal for a small price and then claim that they're actually passing the savings onto the lender, when in fact they're charging a good deal more than what it cost them to make the appraisal in the first place. These are just some examples of the many ways that borrowers can be deceived by junk fees and why they must be vigilant in inspecting their final mortgage agreement to avoid such duplicity.

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