Junk fees, in the context of financial transactions and specifically mortgage lending, refer to additional or excessive fees charged to borrowers beyond the legitimate and necessary costs associated with the loan. These fees are often considered unnecessary, inflated, or non-transparent, and they can significantly increase the overall cost of borrowing.
Junk fees can include charges for admin tasks, document preparation, application processing, rate lock extensions, courier services, or excessive underwriting fees. Essentially, they are fees that seem excessive or unrelated to the actual cost of providing the loan. They can significantly increase the closing costs associated with a mortgage loan, adding hundreds or even thousands of dollars to the total amount the borrower needs to pay at closing.
Because junk fees are often not clearly disclosed or explained to borrowers during the loan application process, it can be difficult for borrowers to understand the true cost of the loan and compare offers from other lenders. To avoid paying excessive fees, borrowers should carefully review the Loan Estimate and Closing Disclosure provided by the lender. These documents outline the estimated costs associated with the loan, including itemized fees. Asking questions and seeking clarification from the lender or loan officer can help identify any potential junk fees and negotiate their removal or reduction.