Which home mortgage fees are justified?

DEAR BOB: Which home mortgage fees are proper for a lender to charge borrowers? I recall you said some fees are unnecessary junk or garbage fees to avoid --Stephen O.

DEAR STEPHEN: Mortgage lenders are constantly working 24 hours a day, seven days a week, to create new names for unnecessary junk or garbage fees to impose on innocent borrowers who have no clue when they are being ripped off. However, there are many honest mortgage lenders who won't try to impose unexpected last-minute fees.

Purchase Bob Bruss reports online.

I suggest you start shopping among at least a half-dozen mortgage lenders for a so-called "no cost, no fee" home loan. In today's mortgage market with rising interest rates, I recommend obtaining a fixed-rate mortgage.

However, if you are certain you won't keep your home more than five years, then an adjustable-rate mortgage (ARM) fixed for five years can save you a few interest dollars. But be certain it does not contain a prepayment penalty or negative amortization (where the interest rate adjusts monthly or semi-annually and unpaid interest is added to your loan balance).

If you are dealing with a direct lender, such as Wells Fargo, Bank of America or Countrywide, the lender's good faith estimate must reveal all loan charges. But you might be asked to pay legitimate fees to third parties, such as for the appraisal, credit report and lender's title insurance fee. That's fine. Those are not junk or garbage fees.

However, if you are dealing with a middleperson, such as a mortgage broker, his or her written good faith estimate might be less reliable. The reason is the broker often says, "I got you the best mortgage, but the lender imposed these unexpected junk fees at the last minute. Take it or leave it."

Watch out for unnecessary, 100 percent pure lender profit, previously undisclosed junk or garbage fees with creative names such as underwriting fee, document preparation fee, loan review fee, warehousing fee, and loan origination fee.

If the lender asks you to pay a loan fee of 1 percent or 2 percent of the amount borrowed, usually called points, ask how much reduction you will receive in the loan's interest rate. For each one point loan fee paid, you should receive at least a one-eighth-percent reduction in your loan's interest rate for the life of the mortgage. Pay a loan fee only if you expect to stay in the house at least 10 years. Otherwise, take the no-cost, no-fee mortgage with all lender charges included in the interest rate.

(For more information on Bob Bruss publications, visit his
Real Estate Center).

Copyright 2006 Inman News