A junk fee is a fee that is charged to the borrower but serves no purpose other than to increase the revenue to the originator. There is quite a bit of confusion on legitimate fees and junk fees on the Good Faith Estimate but more often than not, fees are not junk.

Junk fees mortgage companies charge are not a percentage of the loan amount but rather a lump sum between $50 to $1,000 depending on the fee. It can be a completely made up fee or a fee bumped up so you pay more than the actual cost of the service.

Junk Fee: How Do You Spot One?

It is hard to say exactly what every junk fee is since they are “made up”. A good rule of thumb is to look at how many fees are going directly to your originator. The originator makes money from the origination fee, from increasing your rate, or both. Then, they usually charge a $200-$400 processing fee. The origination fee and a small processing fee are not junk fees.

Services performed by those other than the origination company are called third-party fees and are also legitimate fees. The lender underwriting your mortgage charges an underwriting fee, the title company charges a fee for the insurance and closing, etc. These companies tell the loan officer or broker what their fees are and then the loan officer or broker puts them on your good faith estimate.

A junk fee comes from the originator to pad his or her income. Any fee the originator charges, beyond the origination and processing, ask for an invoice after the service was performed. These would be fees like the appraisal or courier fees. The loan officer or broker may estimate a fee like a courier or overnight fee on the good faith estimate but the exact charge should be on the closing statement. And if you ask for invoices, you can make sure that happens.

In short, if the fee isn’t a third party fee charged by the lender underwriting and closing your mortgage or the title company, it is going to the originator and if they can’t produce an invoice, it’s a junk fee.

Most lenders make the loan officer or broker produce invoices for the fees they charge you. Being charged a junk fee is much less likely these days with this procedure.

You might think you pay refinance junk fees but remember, a refinance is a brand new mortgage. You are going to have most of the same fees when you refinance as you had when you bought.

Most fees on the GFE go to actual people and/or companies for real services perfomed. They are legitimate fees.

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