For the most part,
lenders’ 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 on to 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 of this book) can points be financed
along with the rest of the mortgage. A complete list of closing costs is detailed in
Chapter 15 of the referenced book.
Junk fees came about because of the cut-throat competition created by the huge
number of lenders competing for mortgage business around the country, Paul 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 Homebuyers 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
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