Mortgage fees to avoid

Buying or refinancing a home is hard enough before even thinking of the up-front and ongoing fees. There are big decisions to be made and juggling the costs isn’t easy. There’s a price to any home loan, but some fees can be negotiated or even avoided altogether. This is your guide on mortgage fees to avoid and what you may bargain.

What are mortgage fees?

Mortgage fees are additional costs associated with getting a home loan beyond the loan itself. These may be one-time fees like closing costs or ongoing expenses such as mortgage insurance, which you’ll pay if you make a down payment of less than 20%.

Some fees are under the control of the lender, while others like insurance costs and late fees, are in your control or even completely avoidable. Understanding what you’re being charged for can help you in the shopping process as you become a savvier borrower.

What are junk fees?

Junk fees are those that aren’t based on normal competitive forces, meaning there may be overly high costs for services that are either undisclosed or that consumers wouldn’t want, according to supervisory highlights from the Consumer Financial Protection Bureau.

Sometimes lenders can make things confusing by listing several small similar fees or charging for the same service under different names. A Fannie Mae analysis of Closing Disclosure data fields from the Mortgage Industry Standards Maintenance Organization (MISMO) showed 220 unique potential data fields.

A small fee in the range of $60 – $100 may not sound like much, but they can add up when there are several. Even if the fee itself is legitimate, one way to compare lenders when looking at different Loan Estimates is to see what they charge for services that sound the same. If there are differences, one lender may be padding their profits.

At application, lenders may collect a deposit to help pay for certain third-party services that go along with getting your loan, like the appraisal and credit report. These show up on your Closing Disclosure as credits toward those items. Never be afraid to ask your lender to explain where your money is going.

The following are some examples of potential junk fees to look out for:

• Separate application fees
• Email fees
• Courier fees
• Wire transfer fees

Some things may not be complete junk in themselves, but you also don’t want to be overcharged.

Are all avoidable mortgage fees junk fees?

Not all fees that are avoidable are junk. Let’s run through a couple of examples to show you some places where fees don’t always apply, but they do have a purpose.

If you make less than a 20% down payment on a conventional loan, you’ll pay private mortgage insurance. While there’s no direct benefit to the borrower, the payment goes to the lender if there is a future foreclosure on your home and it sells for less than the balance owed. This backstop allows lenders to accept lower down payments.

Title insurance protects you if there’s a claim to the ownership of your property in the future. You’re required to purchase a lender’s title policy for the amount of the mortgage, but an owner’s title policy is optional. Still, you may want it to protect your property interest if something comes up that wasn’t found in the title search.

Which mortgage fees can you avoid?

Mortgage costs are regulated by a couple of different acts of Congress. The Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Although simplified, perhaps the best way to think about this is that TILA deals mostly with costs associated with the loan itself while RESPA covers the other closing costs.

From a practical perspective, the consumer doesn’t need to get bogged down in the differences because TILA and RESPA are both integrated into one set of forms. After the initial application, you’ll receive a Loan Estimate. Finalized costs are listed on your Closing Disclosure.

You may be able to negotiate some of the following fees when a lender wants to remain competitive and earn your business. In other cases, as with title insurance, you can shop around. Here’s a list of fees that may be more flexible than others:

• Lender origination fee
• Prepayment penalties
• Title insurance
• Application fees

There are other fees that can be outright avoided depending on your choices and how you manage your mortgage over time.

• Mortgage late fees
• Paper statement charges
• Discount points to buy down your mortgage rate

How to avoid extra closing costs

Most mortgage fees that you’ll deal with fall under your closing costs, which cover the fees of the lender and third-party service providers associated with setting up your loan. These are usually 3% – 6% of the loan amount or purchase price when you’re looking to buy or refinance. Some of these may be junk, but others are necessary.

Lender fees

Lender fees cover the lender’s expenses in setting up the loan as well as defining their profit. Some fees on the following list may be negotiable, but you’ll have a better chance at that if you have excellent credit and can show estimates from other lenders:

• Application fee: This is a fee for collecting and processing your application.
• Loan origination fee: The amount of this origination charge often defines the lender’s profit when making a loan.
• Mortgage rate lock fee: In locking your rate, your lender is hedging against future market movements before you close, so longer rate locks may cost more.
• Funding your escrow account: Typically, you fund a year worth of property tax payments and homeowners insurance premiums, plus a month or two of cushion. Sometimes you can waive the escrow account.
• Prepaid interest: When you receive your mortgage statement, you’re paying the interest for the previous month. When you close, you pay the mortgage interest between your closing date and the first of the following month.
• Discount points: You can choose to buy down your permanent interest rate, with one point costing 1% of the loan amount.

Third-party fees

Your lender works with several third parties who provide certain services in closing your loan. Your Loan Estimate will list what you can and cannot shop for. Certain other fees may or may not be negotiable:

• Recording fee: Your deed and lien information have to be recorded with your county or parish.
• Survey fee: This may apply if you need to clarify the property line.
• Tax search and reporting: Servicers have to know that your property taxes are being paid to make sure there are no additional liens placed on the property.
• Title work: You can shop for this, but this fee is for the title search and insurance policy.
• Appraisal: This is the cost of a professional property valuation.
• Courier fee: This covers document delivery.
• Credit reporting fee: Your credit report is typically pulled twice, once around when you apply and once when you’re about to close to make sure your financial situation remains stable.
• Homeowners association (HOA) transfer fee: Some HOAs charge a fee to transfer an account from the previous homeowner to the next.

Ongoing fees

You may have certain ongoing fees throughout the life of your mortgage. The easiest one to avoid is a late fee, simply by paying your mortgage on the due date. Some lenders charge for paper statements or paying by check, Rocket Mortgage^® doesn’t. You can avoid these charges by getting electronic statements and paying online.

The bottom line: Know your fees so you can save

Understanding the fees associated with a mortgage and being able to compare them among lenders gives you negotiating power. Not all fees are junk, but you should be able to see when a lender is overcharging you. Well-qualified borrowers are more likely to close and have more leverage to bargain with the lender for their business.

We hope you feel confident you have an understanding of what to look for now. If you’re ready to get started, apply online.