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Junk Fees! - What Are They and How Do I Avoid Them?

Aug 17, 2007
When closing on a property...be sure to take a good look at your HUD-1 or closing statement. Which fees are legitimate costs and which ones are junk fees?

Some legitimate fees would be listed as:

* Origination Fee -Some people consider this a "junk fee"...however, most lenders charge it...but it should never exceed 1% of the loan amount

* Appraisal Fee

* Credit Report

* Prepaid Interest

* Prepaid Insurance

* Closing Fee

* Document Preparation

* Title Insurance or Simultaneous Issue

* Courier or Wire Transfer Fee

* Tax Stamps

* Recording Fees

What are "junk fees"? They are simply itemized fees created to increase profits for the lending institution. It can be confusing, because most of them will have legitimate sounding names. Here are a few I've seen over the years:

* Processing/Credit Report - One lender tried to charge a buyer $500 for this "junk fee". They don't process credit reports. They simply order one and their underwriter looks it over...but most of the time the FICO score will be the basis for approval or denial on the loan. This fee is completely out of line.

* Underwriting Fee - This one is fairly common, but still "junk". The underwriter is there to "underwrite" the loan. It's part of the process, and you shouldn't be charged extra for it.

* Broker Fees are legitimate charges - as long as they are not inflated charges.

* Administration Fees/Processing Fees - These fees are simply a way for the lender to pass their cost of doing business onto the homebuyer.

* Lenders Inspection Fee

* Bank Inspection Fee

* Amortization Fee

* Administrative Fee

* Notary Fee

* Application fee

Most of the charges on your settlement statement will be legitimate. But it's best to go over this with your Exclusive Buyer's Agent before closing. Ask questions about any charge that seems to be vague or excessive. Lenders frequently adjust these fees when confronted with someone asking questions.

Better yet, make sure all your fees are shown up-front on the good faith estimate from the lender. The lender, by law, must provide you with this document within 3 days of loan application. If there are any "junk" fees listed, now is the time to take care of them....or find another lender. I would go so far as to say that if these "junk fees" show up in a good faith estimate, it would be advisable to find another lender right then. Because they can always slip them into the closing statement...and it's not fun to deal with them at closing. It's always a good idea to use a reputable lender. Get references!
About the Author
Pam Rumley is a veteran real estate broker in the Nashville, TN area. She is a true Exclusive Buyer's Agent. There is never a conflict of interest regarding your real estate transaction. You can be assured of receiving 100% of her attention and loyalty - 100% of the time.

For more information, visit her comprehensive website, www.NashvilleRealEstateAuthority.com
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