Origination Fee
An origination fee is a charge by the lender for processing and underwriting your mortgage application, typically expressed as a percentage of the loan amount or a flat dollar amount. On a $350,000 loan, a 1% origination fee equals $3,500 paid at closing. This fee is one of several you'll see itemized on your Loan Estimate.
Origination fees compensate the lender (or broker) for the work involved in creating your loan—reviewing your application, ordering the appraisal, verifying employment and income, and preparing loan documents. Not all lenders charge origination fees; some build their profit entirely into the interest rate. A direct lender's origination fee goes entirely to covering in-house processing costs, while a mortgage broker's fee compensates the intermediary—so the same fee type can have different sources depending on who you're working with.
When comparing lenders, look at both the origination fee and the rate together. A lender charging 1% origination ($3,500 on a $350,000 loan) at 6.75% might be a better or worse deal than a lender charging no origination fee at 7.0%, depending on how long you keep the loan. Over 30 years, the lower rate saves you more. Over 3 years, avoiding the upfront $3,500 might save you more.
Origination fees are distinct from discount points. An origination fee is compensation for the lender's services; discount points are prepaid interest that buys down your rate. Both appear on your Loan Estimate under Section A (Origination Charges), which is why some borrowers confuse them. Ask your lender to clearly explain whether each charge is a fee or a point.
Key Takeaway
An origination fee is a charge by the lender for processing and underwriting your mortgage application, typically expressed as a percentage of the loan amount or a flat dollar amount. On a $350,000 loan, a 1% origination fee equals $3,500 paid at closing. This fee is one of several you'll see itemized on your Loan Estimate.
Related Terms
Frequently Asked Questions
Yes, often. You can ask lenders to reduce or waive the fee, especially if you have strong credit or are a repeat customer. Alternatively, accept a slightly higher rate in exchange for a lender credit that covers the fee.
The lender isn't charging a separate fee for processing your loan. Their profit comes entirely from the interest rate spread. You're not getting a 'free' service—you're paying through the rate instead of upfront.
Origination fees paid as points (prepaid interest) may be deductible in the year paid for a home purchase. Consult a tax professional for guidance specific to your situation and the current tax code.
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