Mortgage Fees To Avoid

No service is free, and like anything else, there are many legitimate fees that come with getting a home loan. But it’s also important to know that certain fees aren’t charged by every lender and many are negotiable. We’ll go over some mortgage fees to avoid and others you can expect.

What Are Junk Fees?

No one wants to pay extra money when they don’t have to, so you might consider all fees junk fees. But a more formalized definition of a junk fee is any cost you pay without necessarily knowing about it. These may be fees for things that cost your service provider little or nothing, but you’re still charged for them.

Are All Avoidable Mortgage Fees Junk Fees?

Not every fee that can be avoided falls into the junk category. In the mortgage industry, if you make a down payment or have an equity amount of less than 20% on a conventional loan, you’ll have to pay for private mortgage insurance (PMI) until you reach 20% equity.

You’ll pay for the cost of the policy upfront at closing, in a monthly fee, or some combination of the two. Your lender may also pay the premium in exchange for you taking a higher rate during your term. It can be avoided altogether with a down payment or existing equity of at least 20%.

Which Mortgage Fees Can You Avoid?

Lender fees can be somewhat negotiable. Lenders compete for business, so they have to be competitive with others in the industry. It’s easier to negotiate lender fees than third-party fees. The reasoning here is that lenders have to engage certain third parties that can’t be affiliated with any party to the transaction. For example, the appraiser has to be completely independent.

PMI is a good example of something that can be avoided altogether with the right amount of down payment or equity. The VA has a funding fee in lieu of mortgage insurance that generally must be paid, but there are exceptions: those who receive VA disability, qualified surviving spouses and those who return to active duty after having received a Purple Heart.

While not necessarily a mortgage fee, you’re also not required to get a home inspection. Additionally, you’re required to get a title policy that protects the lender’s interest, but you’re not required to get an owner’s title policy. Both a home inspection and an owner’s title policy are good to have for your protection, but they may be skipped.

How To Avoid Extra Fees When Buying Or Refinancing A House

The Real Estate Settlement Procedures Act (RESPA) requires that lenders disclose financial information related to the cost of your loan. Since laws were passed last decade, you get standardized Loan Estimates and Closing Disclosures combining the information required under both RESPA and the Truth in Lending Act.

Because fees are disclosed, you should be able to ask questions of and negotiate with your lender.

Know Your Closing Cost Fees

Whether you’re a home buyer or you’re looking to refinance your existing mortgage, the initial fees associated with your loan are going to be closing costs in addition to any required down payment. Closing costs cover the expenses of lenders and third parties associated with setting up and processing your loan.

While this is a survey of some costs, not every fee applies to every loan and may not be charged by every lender.

Lender Fees

• Application fee: This fee is for costs related to taking your application, including collecting documentation and scheduling necessary vendors for the upcoming parts of the process.
• Loan origination fee: Sometimes split into a processing and underwriting fee, this covers the cost of a lender associated with going over your documentation and checking out your qualifications for a loan.
• Closing fee: Depending on the laws of your state, either a licensed notary or a real estate attorney is required to be present at closing.
• Discount points: Discount points represent prepaid interest given to a lender in order to buy down the interest rate associated with your loan. One point is equal to 1% of the loan amount, but you can buy points in increments down to 0.125%.
• Interest before first payment: Mortgage interest accrues on a daily basis. Because of this, your lender will collect at closing for the interest on the days between closing and your first mortgage payment.
• Mortgage rate lock fee: When lenders lock your mortgage rate, they are making bets on where interest rates are going to be well into the future. They have to hedge to mitigate risk and there’s a cost associated with doing that.
• Escrow fees: There are a few different types of escrow fees associated with mortgage transactions. If you’re buying a house, there’s an escrow account associated with the earnest money deposit and the cost is split between buyer and seller. Then there’s funding an escrow account for your property taxes and mortgage and homeowners insurance. There could be a fee charged to maintain the escrow account itself, but that’s a servicing fee and we’ll touch on that in a minute.
• Prepayment penalty: Some lenders charge a prepayment penalty if you pay off your loan before a certain number of years, including if you refinance. Read the loan terms carefully. Rocket Mortgage^® doesn’t charge this fee.

Third-Party Fees

• Recording fee: The recording fee is paid to your local government to update public records related to your property ownership.
• Survey fee: The survey fee covers the cost of having someone come out and measure your property. This could come into play if there’s a property line dispute, for example.
• Tax search and reporting: Your lender will employ a service to make sure that when they set up your escrow account, they’re collecting the right amount for taxes. This service also reports if you ever miss a tax payment.
• Title search fee: A title search is focused on the ownership history of the property. The goal is to make sure no one other than the seller has a legitimate ownership claim to the property you’re about to buy or refinance.
• Title insurance policies: The purpose of a title insurance policy is to make the holder financially whole if someone came along with a legitimate claim to the property that wasn’t discovered in the title search process. Because of the lender’s investment in your home, you’re required to buy a lender’s title policy, but policies for the benefit of the owner are also available.
• Appraisal: When you buy or refinance a property, it’s based upon having an accurate value for the home. Many times, the appraisal from an independent party is the way that value is established.
• Credit reporting fee: This is the cost to pull your credit report and get your score.
• Courier fee: This is the fee for document delivery.
• Inspection fee: There are various types of inspections that could come up in relation to your home loan, although you’ll typically only need them if your appraiser notes a potential problem. The exception would be for VA pest inspections, which are often required depending on the state you live in or even the county within the state.
• Flood certification: If you’re living in a flood zone, you’ll have to pay a flood certification fee. The money goes to the Federal Emergency Management Agency, which uses the money and data for risk modeling and planning.
• Homeowners association transfer fee: This is a fee for those living in a homeowners association to settle up and transfer the account for an address from the seller to the buyer.

How To Avoid Extra Fees While Paying Your Mortgage

Once you close on your mortgage, you go from the origination stage of the process to servicing. Servicers collect your payments and manage your escrow account. Most of the time, you’re not charged for making a payment, so avoiding servicing fees is a matter of knowing what triggers them and not taking those actions.

Not all fees are charged by all servicers. Your servicer can be your lender or another entity entirely.

Know Your Servicing Fees

• Payment fees: Some servicers may charge you to pay by check or over the phone or they may have a fee if they allow you to pay by credit card. Rocket Mortgage doesn’t allow payments via credit card.
• Statements: You may be charged for paper statements.
• Corporate advance fees: Corporate advances happen when a lender covers your missed payment or short amount temporarily. You’ll get a bill from your servicer, including interest owed on the advance. This is different from having an escrow shortage, which operates on a different mechanism.
• Mortgage recast fees: A mortgage recast allows you to have your loan reamortized to lower your monthly payment if you put a big enough lump-sum payment toward your balance. We require at least $10,000 in additional payments toward the balance to be made and have a $250 fee.
• Late payment fees: Mortgage payments are generally due on the first of every month (excluding biweekly payments), but most mortgage contracts include a grace period until the 15^th. If you pay after the grace period, there’s typically a late fee.
• Escrow fees: The servicer may charge you a fee for maintaining the escrow account related to your taxes and insurance.

The Bottom Line: Know Your Fees So You Can Save

You never want to be charged for something without knowing what it’s for, but not all mortgage fees are junk or avoidable. On the origination side, certain things are optional, like owner’s title policies and home inspections not required based on the appraisal. But you may want these things. On the servicing side, potential fees include corporate advances and late payments.

Now that you have a better understanding of what you can expect in terms of costs, if you’re ready, you can start your application.