What Are Origination Fees and Can They Be Avoided?
An origination fee is part of the multi-step process of getting a loan and includes the cost of processing the application, underwriting, and financing the loan. The lender may combine the fees into one charge or may list each one individually.
Either way, origination fees are separate from your mortgage down payment and are often paid as part of your closing costs.
What Do Origination Fees Cover?
- Loan processing, such as reviewing your application and preparing documents.
- Underwriting, such as gathering and verifying your information, including your credit score.
- Loan Funding, such as "points" that lower your interest rate
How To Determine the Cost of Your Mortgage Origination Fee
The typical origination fee is between 0.5% and 1% of the total loan amount. Several factors affect your exact fees. Unfortunately, we cannot give you the formula to figure out your costs as each lender uses slightly different criteria to determine them.
However, the largest contributing factors that determine the costs are the loan amount and your credit score --the higher the score, the lower the origination fees.
Can Origination Fees Be Avoided?
Origination fees must be paid — but not necessarily by you. The home seller may be willing to pay your fees if:
- The home's been on the listed for a while
- They haven't received any offers
- The property is rundown
- They're in a hurry to sell and cash out quickly
Lenders sometimes cover origination fees, too. Note that although this could mean paying less upfront, it might come at the cost of a higher interest rate. Consider what's most important to you before negotiating origination fees.
Also, keep in mind that some loan fees are unavoidable, such as:
- Credit report
- Tax service
- Flood certification
- Wire transfer
- Courier service
- Title insurance
- Escrow/signing fee
Loan origination fees are tricky because each lender calculates differently, and those differences may not always be clear. Transparency and simplicity are foundational to our process, and we welcome all your questions about how we calculate origination fees.
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