Homebuyers and refinancers can save potentially hundreds of dollars or more on their mortgages if they make sure their banks throw out "junk" fees.
" 'Loan-application fee,' 'processing fee,' 'funding fee' -- lenders come up with so many names," says Polyana da Costa, senior mortgage analyst at Bankrate.com. "Every lender will charge you some fees for a mortgage, [but] if they charge you every type of fee you've ever heard of, it's time to look for another lender."
Lenders large and small sometimes pad a mortgage's closing costs with several small fees that cost a few hundred dollars or less each but can add big bucks to your total closing costs. In addition to those noted above, other questionable fees that some banks charge include "email fees," "PDF fees," "document-printing fees," "document-preparation fees," "administrative fees" and the ever-popular "miscellaneous."
Some banks or mortgage brokers will even charge you twice for the same service -- assessing, say, an "origination fee" and a "broker fee" even though they're the same thing.
Worse, it's not always clear what -- if anything -- lenders really do to earn such fees.
Da Costa says the easiest way consumers can avoid junk charges is to simply make your lender or broker explain what any questionable expense covers.
"Ask what it's for," she says. "You don't have to pay for something that you don't understand."
If your lender won't drop a questionable fee outright, they might haggle on its price if you threaten to walk away -- even if you're already at the closing table.
"Few consumers realize that they're not obligated to sign things just because they're at a closing," da Costa says. "If you don't agree with certain charges, don't close."
Here are some other tips for getting the junk out of your mortgage's costs:
1. Scrutinize all paperwork.
Every lender must by law give you a form called a "Good Faith Estimate" of closing costs within three days of taking your loan application. The bank must follow up with a "HUD-1" form of final costs at least 24 hours before your scheduled loan closing.
Lenders use standardized forms for the HUD-1 and Good Faith Estimate so it's easy to see which fees the lender is charging.
On the Good Faith Estimate, look at sections titled "Our origination charge," "Required services that we select" and "Required services that you can shop for."
On the HUD-1, look at items in the sections titled "800," "Items Payable in Connection with Loan," and "1100, Title Charges."
2. Haggle -- but focus on the bottom line.
You'll have your best chance getting lenders to lower items in the HUD-1's "800" section, as banks generally control those charges. (Outside vendors set some 800 fees, such as those covering home appraisals and credit reports.) You can also sometimes haggle on certain "1100" charges such as settlement and title-search fees, or even find a title company on your own to offer those services at a price you like.
Da Costa says you should focus less on how much a bank wants to charge for each individual item, though, and more on the total closing costs you're paying.
"Some lenders will charge you one or two fees and others will charge three or four, but you don't want to get too hung up on that," she says. "It's not really about how many fees you're being charged. It's really about the final number."
You'll find each offer's total closing costs at the bottom of the Good Faith Estimate's first page in a section called "Summary of Your Settlement Charges." Check out the number under "Your Adjusted Origination Charges," which the bank sets.
Also look at "Your Charges for All Other Settlement Services," but bear in mind that the lender doesn't control some of those charges.
Once you decide to go forward with a loan, check your HUD-1 form when it arrives and make sure the numbers haven't changed much from the Good Faith Estimate. By law, some fees can go up as much as 10 percent between the time you got the estimate and the time you close on the loan -- but others can't change at all.
3. Apply with multiple lenders.
One of the easiest ways to avoid junk fees is to apply for a mortgage with several lenders and simply see who's offering the best deal.
Da Costa suggests applying with three different types of loan sources -- one big bank, one small bank or credit union and one mortgage broker (who will suggest a mortgage for you from among several lenders).
But beware: Many lenders charge nonrefundable application fees. Da Costa recommends sticking to those who won't charge you a nonrefundable fee before giving you a Good Faith Estimate.
Also bear in mind that lenders who offer low fees might charge higher mortgage rates, or vice versa. You'll have to consider both closing costs and mortgage rate when looking for the best deal.
One easy way to compare two loans is to look at each one's "annual percentage rate" (or APR), which factors in interest and closing cost. You'll find each mortgage's APR on a "Truth in Lending Act" disclosure form you'll get within three days of applying for a loan.
The APR only tells you how much you'll pay if you keep a mortgage for its full term, though -- usually 30 years. If you plan to sell or refinance before then, you'll have to compare what each loan will charge you over a smaller number of years. Online tools such as LendingTree.com's Mortgage Loan Comparison Calculator can help.
4. Compare costs to your state's average.
To get a rough idea of how a loan's closing costs stack up with industry averages, check out Bankrate.com's latest Closing Cost Survey results for your state.
"The survey can help consumers get an idea of whether they're being overcharged," da Costa says.
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