Fees seem to be a necessary and unavoidable part of the home loan process. Fees are used to cover the costs associated with mortgage lending and they are passed onto the borrower by the lender. If a home buyer is interested in qualifying for a mortgage, but wants to know how to avoid origination fees, it’s important to know that, while some fees are reasonable, such as a loan origination fee, others called “junk fees” are not.
Junk fees, often hidden within the complicated language of mortgage contracts, aren’t always easy to identify because they may seem reasonable, but it’s important to examine what those fees are being put toward. A truly necessary fee will help cover a legitimate cost associated with buying a home. However, a junk fee will be only very loosely related to a mortgage and is required of a home buyer so the lender can make a larger profit at the buyer’s expense. It’s important to understand which fees are really necessary because untrustworthy lenders will try to find ways to increase fees.
The lending laws that govern how mortgage lenders must behave when working on a mortgage with a home buyer will vary from state to state. This means that fees will range and that it’s easier for lenders to tack on fees that are unnecessary if the buyer isn’t aware of the laws. To avoid paying for expenses that don’t apply to the mortgage in a meaningful manner, home buyers should learn about how the process works and where the costs are rather than relying on a lender to tell them.
Avoiding Origination Fees
An origination fee is the charge a home buyer will pay to a lender for the work it takes to prepare a mortgage. This may include processing paperwork like refinance applications, pulling credit scores, mortgage disclosures and other side work it takes to get a mortgage prepared. Fees are usually charged based on a percentage of the mortgage amount, up to 3%.
Home buyers can avoid paying high origination fees by doing some of the work on their own and knowing what parts of the process are necessary and which are not. For example, a buyer will incur a charge if a lender pulls their credit score, however, a credit score is not necessary for lenders to provide an estimate of charges that apply to the mortgage process. Ask lenders if they offer flat-fee loans or negotiate for what the fees will be. Keep in mind, the less paperwork a lender needs to do, the lower the fees will be.
Costs related to the title company are typically part of the origination fees; however, home buyers have the right to shop around for another title company that costs less. Remember that costs are negotiable. If a home buyer helps locate and choose a title company that is cheaper than the lender anticipated, buyers can request that a mortgage lender will drop the origination fees altogether.
- Mortgage Loans