Garbage fees, which are sometimes called junk fees are unnecessary fees that are tacked onto mortgage closing costs by lenders. Lenders do this to increase their own profit on the loan. There are a number of ways that lenders manage to fold garbage fees into closing costs. These fees may have names such as administrative fee, application fee, appraisal review fee, courier fee, document preparation fee, document review fee, loan origination fee and settlement fee.
Each of these charges may legitimately describe a service that the lender has provided. For example, the lender may have reviewed an appraisal of the property and prepared the necessary documents for a closing. However, these are basic duties that a mortgage broker is expected to fulfill. They are not actually extra services that require payment as separate line items.
These charges may be blatantly illegitimate or typical costs of business, but either way, lenders will sometimes exaggerate the work and cost associated with them before the fee is passed on to the customer.
Garbage fees will sometimes be waived by lenders if pressured by the borrower. In order to get these fees waived, the borrower may need to explicitly ask that the fees be waived, or simply express an unwillingness to pay them. The best time for a buyer to do this is before signing a good faith estimate.
Garbage fees are distinct from any third party fees, such as fees charged by a home inspector or an appraiser. These fees are legitimate and go to professionals performing a necessary service.
Why Pay Garbage Fees
Garbage fees can feel like a rip off to homebuyers, especially when they suspect that another lender would not charge the same amount. However, for most people buying a home, the ultimate goal is to find the home they want, at a good price, with a mortgage that they can afford. This can be a difficult combination to achieve. Thus, if a homebuyer finds a great home and manages to negotiate a price that they like, they’ll be eager to find a mortgage lender who’s willing to work with them quickly.
For example, if the median price of a home in the U.S. today was $188,900 and the lender tacks on an additional $1,000 in garbage fees, that may feel unfair to the buyer, but it’s not a particularly large amount of money compared to what they’re planning to pay for the home over time. Furthermore, in a competitive real estate market, time is of the essence, so a buyer may be willing to stick with a lender who charges garbage fees in the name of expediency, rather than taking more time to shop around for a different lender.
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