Junk fees are various additional charges a lender imposes at the closing of a mortgage. These charges are often unexpected by the borrower and not clearly explained, resulting in the perception that these fees are excessive and arbitrarily tacked onto legitimate closing costs.
Key Takeaways
- Junk fees are unexpected costs presented at mortgage closing.
- These fees are often seen as arbitrary and excessive.
- Borrowers can challenge and negotiate these fees, yet often don’t, benefiting lenders.
- The Consumer Financial Protection Bureau (CFPB) implemented reforms in 2015 to cap increases in fees.
- Borrowers should always scrutinize and question unnecessary fees.
Clarity on Junk Fees
Typically, junk fees include costs listed on the HUD-1 settlement statement, a detailed itemization of all loan-associated expenses provided at closing. In many cases, this list may contain dubious charges such as document preparation fees, application fees, and more.
In 2015, the CFPB streamlined this paperwork by consolidating forms into a Closing Disclosure that provided clearer information and placed a 10% cap on permissible fee increases.
Impact of Junk Fees
These fees may unnecessarily inflate the home buying costs, potentially causing financial strain on the buyer. Despite the right to challenge and negotiate these fees, few borrowers do so, often resulting in higher-than-anticipated final costs.
Common Junk Fees
These tags might include fees perceived as unnecessary, such as:
- Document Preparation Fee
- Application Fee
- Funding Fee
- Verification of Employment Fee
- Sign-Up Fee
- Translation Fee
- Automated Underwriting Fee
Steps to Negotiate Junk Fees
- Scrutinize Fee Listings: Review the fees in your mortgage carefully, starting with the itemized HUD-1 settlement statement or Closing Disclosure.
- Ask Questions: Don’t hesitate to ask the lender for explanations regarding the necessity of any unclear or unexpected fees.
- Negotiate: Remember, it’s within your rights to negotiate. Well-armed with information, you’re positioned to request the removal or reduction of questionable fees.
Closing Advice
While mainly not illegal, junk fees can burden your finances unexpectedly. Understanding these fees empowers you to engage in informed discussions with your lender and avoid excessive costs. The closing process should culminate in a milestone of joy and achievement in your home buying journey.
Related Terms: HUD-1 settlement statement, good faith estimate, closing disclosure, deceptive lending practices.
References
- Consumer Financial Protection Bureau. “CFPB Uncovers Illegal Junk Fees on Bank Accounts, Mortgages, and Student and Auto Loans”.
- Consumer Financial Protection Bureau. “Can My Final Mortgage Costs Increase From What Was on My Loan Estimate”?
- Consumer Financial Protection Bureau. “What is a HUD-1 Settlement Statement”?
- Consumer Financial Protection Bureau. “What is a Good Faith Estimate (GFE)”?
