Beware Junk Fees
Every time you open your wallet, you don’t want to spend more money than you need to. You know from going to the store every week how to judge the price of a box of cereal or bottle of shampoo, but are you ready to evaluate the closing costs of a mortgage?
Getting a home loan is something you may only do a few times in your life, and chances are you’ll have a lot on your mind while you’re doing it. When you’re haggling over a home price and talking tens of thousands of dollars, it can be easy to overlook a few extra hundred dollars here and there charged by your mortgage lender. That’s just the price of getting a home loan, right? Well, not necessarily.
Most people don’t realize it, but many closing costs can be avoided by comparison-shopping different lenders.
It’s normal for mortgage lenders to charge fees for their services, and some expenses cannot be avoided. When a lender pulls your credit report or orders an appraisal, a third-party agency sends them a bill. However, you need to make sure you do not choose a lender that is also tacking “junk fees” onto your mortgage for the sake of increasing their profit.
Lender fees can go by many names, including:
- Application fee
- Origination fee
- Underwriting fee
- Rate-lock fee
- Processing fee
- Document preparation fee
- Office administration fee
- Funding fee
- Review fee
A lender might try to nickel-and-dime you by including several fixed fees, or they might set one big “processing” or “origination” fee at a high percentage of the loan amount. A 5 percent origination fee may not sound like much, but on a modest $100,000 mortgage, it means a whole extra $5,000 for you to pay out of pocket.
When you are looking for a mortgage, talk to several different lenders and be sure to get a detailed breakdown of their fees when they give you a quote. If you see that one lender charges a fee that others don’t, ask them about it.
Whenever you’re offered an interest rate, also ask for the Annual Percentage Rate. The APR is a modified version of the interest rate that takes some of the lender’s fees into consideration. Comparing APRs makes it easier to compare offers from different lenders.
A $200 fee may look small next to a $200,000 mortgage, but remember: Avoiding that fee means another $200 you can spend on a nice chest of drawers, a bigger moving van or a upgraded ceiling fan for your living room. No matter what you do want to spend your money on, you definitely don’t want to waste it on junk fees.