In most cases, people approach the decision of getting a home loan with an already preconceived notion that it would be expensive. With this mindset, it would not be much of a surprise for them should they discover that this is apparently the case.

For some, this even passes over their minds and do not see it as a matter of contention. Of course, the hope of getting a cheaper loan still exists in their wishes, but reality simply imposes the idea that this is unlikely. Buying a house is expensive, even with a home loan.

However, even if this is fact, we should not dismiss the possibility of paying less than what you would if you paid less attention. There are things in mortgages that are proverbially referred to as “junk fees”. Basically, these are fees that are not strictly necessary in terms of acquiring a home loan.

Rather, they are additional fees designed to get more money from you in the pretense of lessening your burden. However, it should be noted that on occasion, depending on your home loan and your lender, these might just become somewhat essential.

Closing costs

Closing costs is a shorthand term for the total cost of several dozen potential expenses that is involved with purchasing and financing a real estate. Strictly speaking, closing costs are not on the same level as that of “Junk fees”. However, it helps to know exactly where your money is going when getting a home loan. These expenses can be placed in the categories of “recurring” and “nonrecurring”.

“Recurring” expenses are things that you pay for upon conclusion of the arrangements and need to keep paying each and every month thereafter. Included in “recurring” closing costs are real estate taxes, homeowners insurance, and if you’re putting less than 20% on your down payment, private mortgage insurance.

 Though the choice here is ultimately up to you, the majority of opinions regarding private mortgage insurance is that it should be avoided if possible. Most people simply feel that it isn’t worth the extra cost and you could save more by having a bigger deposit to justify passing over it. Then again, as already mentioned, the choice is yours.

For the “Nonrecurring” costs, these are expenses that will only need to be paid upon closing. Though they vary from lender to lender, this may include the following:

Points – this is where the lender asks for a partial payment of the whole loan. This usually just constitutes 1%, though not always.

Application fee – this goes directly to the pocket of the lender. Don’t raise your eyebrows though as this is only to be expected. Arranging a home loan is not exactly easy, nor is it free.

Some other Loan Fees – depending on your lender, there are a few other fees that need to be settled. These can include any or all of the following: origination fee, appraisal fee, credit report fee, tax service, underwriting fee, documentation fee, wire transfer fee, office administration fee. Apart from these, there are more on the bundle that you must watch out for.

Junk fees

When it comes to “junk fees”, there is not one exclusive way to determine which are which. However, we can safely assume that anything that may border on the excessive can be labeled as such. Some proponents that can be prone to be excessive are Applications fee, Underwriting fees, mortgage rate lock fees, Loan processing fees and Broker rebate.

Without meaning to stain all agents and brokers, it can be fairly assumed that they would be looking at their own profit when making such arrangements. But that is not your concern, and you should only be interested in getting the best deals for the best prices. So if any of these appear to be irregular or unusually high, don’t be afraid to ask them about it. These can be negotiated after all.