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What Is A Mortgage Origination Fee?

One of the first things you’ll discover when you apply for your first mortgage is that there are a whole set of fees that need to be paid as part of that process. These are commonly combined into what we call “Closing Costs.” One of those fees is the Mortgage Origination Fee.

What Is A Mortgage Origination Fee?

A mortgage origination fee is a fee your lender charges to process your loan. It typically takes several dozen person-hours to gather and analyze the information necessary to approve a mortgage loan, and the mortgage origination fee helps pay for that. If you’re working with a mortgage broker, these fees are paid to the broker as their commission for originating the loan.

How Much Are Loan Origination Fees?

Lenders typically charge between 0.5% and 1.0% of the total amount of your loan as a loan origination/mortgage origination fee.

Note, this is key, your loan origination fee and most of the other fees that vary according to the size of your loan (unlike fees that don’t vary, like appraisal and document fees) are based on the size of your loan, not the total purchase price of your home.

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Let’s say you’re buying a $400,000 home and you make a 10% down payment, which would be $40,000. The amount of your mortgage would not be $400,000, it would be $400,000 minus that $40,000 downpayment or $360,000. (Your actual loan amount will vary depending on how closing fees are paid for, etc.)

Let’s say your loan origination fee was 1%. The amount you would pay would be 1.0% of $360,000 = $3,600, not 1% of your $400,000 purchase price (which would be $4,000.)

Where Do Loan Origination Fees Show Up In Your Closing Statements?

Loan origination fees are considered to be part of your closing costs, so will appear in your closing documents in the section where all of the closing costs are listed. In the U.S., they will appear on page 2 of the Loan Estimate and page 2 of your Closing Disclosure under the heading of Loan costs.

Because they show up in your Loan Estimate document, which you should receive shortly after applying for a loan, you should have a clear understanding of the fees and other closing costs you will pay at closing.

When you look at your Loan Estimate report, you may find that your origination charges are itemized. It all depends on your lender. If they do itemize them, your origination costs may include things like application fees, underwriting fees, processing fees, underwriting fees, and rate-lock fees. The important thing is the total amount.

Who Pays Loan Origination Fees?

Loan origination fees are the responsibility of the person taking out the mortgage loan, in other words, the buyer. If you can get the seller to pay a portion of your closing costs, the closing cost amount they pay will be deducted from the total closing cost, so it will wash out in the end.

If My Loan Doesn’t Get Approved, Do I Still Have To Pay Loan Origination Fees?

No, you shouldn’t have to pay when that happens. Since origination fees are part of closing costs, as one of my friends in the business likes to say “no loan, no fees.”

If I Decide To Change Lenders Before Closing Do I Need To Pay The Loan Origination To The Lender I Left? 

People occasionally find it necessary to change lenders prior to closing. While we don’t usually recommend it for a variety of reasons, sometimes it needs to happen. When that happens, you won’t have to pay the loan origination fee to the lender you left, though you will need to pay it to your new lender.

You may still have to pay some of the other closing costs, like appraisal and inspection fees to the original lender. However, you can usually transfer those reports to the new lender, so you won’t have to pay their fees for those items.

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Should You Ask Potential Lenders About Their Loan Origination Fees Before Applying?

Yes, that’s always a good idea, since this is a cost that varies between lenders. However, you should be aware that if you have a challenging financial situation that will require extra work to approve your loan, it may be worthwhile to pay those extra costs to a lender who will work harder to make sure you get your loan approved. I always think of it as it’s better to pay a bit extra and get a mortgage than to pay less and be denied.

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About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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