Origination fees are the fees that lenders charge for processing, underwriting, and financing your mortgage application. This fee is typically between 0.5% and 1% of the loan amount, and you’ll see the exact amount in your Loan Estimate before you commit to anything.
Average Origination Fees
For most mortgages, the origination fee is between 0.5% and 1% of the loan amount, although the exact amount depends on the lender, the type of loan, and how competitive the market is at the time you apply, which is exactly why talking to a mortgage broker before you commit to one lender can save you money. For a $300,000 mortgage, this will be around $1,500 to $3,000. For a $500,000 mortgage, expect it to be around $2,500 to $5,000.
Fees above 1% are not necessarily a red flag, but they are worth looking into. Non-QM products like DSCR or Bank Statement Loans sometimes have higher loan origination fees than a standard Conventional Loan because their underwriting process is more complex. If a lender is quoting you a figure closer to 2% or more for a Conventional Purchase Loan, it’s a good time to get another Loan Estimate from another lender before finalizing anything.
Some lenders don’t use a percentage model at all, and instead charge a flat dollar amount, usually between $1,000 and $2,500. A flat fee can work in your favor for larger loans and against you for smaller loans, so always do the math on both approaches before comparing offers.
What does the origination fee cover?
A loan origination fee is the fee that the lender charges for the actual work involved in converting your application into a funded loan. These include:
- Reviewing your application and obtaining a credit report
- Verifying income, assets, and employment
- Underwriting, which is the risk analysis that determines whether the loan will be approved
- Preparing and processing all loan documents
- Managing the rate lock process, in some cases
The CFPB includes these fees in the “Origination Charges” section of Section A of your Loan Estimate and may combine multiple lines of fees into one section. Some lenders include only one line called “Origination Fee.” Others separate it into an Application Fee, an Underwriting Fee, and a Processing Fee, which add up to the final amount. When comparing quotes, what matters is not the title of the fee, but the total Section A in all the Loan Estimates you receive.
The loan origination fee is separate from third-party fees such as appraisals, title searches, and credit reports, and is also different from any Discount Points you may choose to purchase.
How to Calculate Your Loan Origination Fee
Let’s say you are borrowing $300,000 and your lender is charging a 1% loan origination fee.
Enter the percentage: 1% of the loan amount
Calculate: $300,000 Ă— 0.01
Loan Origination Fee = $3,000
This $3,000 is paid at closing and will be added to your total initial costs. Do the same calculation for each Loan Estimate you receive; For example, if a lender charges 0.6% for the same loan amount, you’ll only be charged $1,800; a difference worth asking about directly.
Loan Origination Fee vs. Discount Points
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These two are often confused because they’re both upfront fees calculated as a percentage and displayed on the same page of your Loan Estimate, but they serve different purposes.
The loan origination fee is the fee you pay the lender to originate the loan. This fee has no impact on your interest rate.
Discount Points are optional. You pay them to lower your interest rate. Each Point is equal to 1% of the loan amount; the same calculation as the loan origination fee, but the money goes toward lowering your interest rate instead of the lender’s processing fees.
For a $350,000 loan with a 6.75% interest rate, one Point might cost $3,500 and lower your interest rate to about 6.5%, saving you about $59 per month in principal and interest.
If you divide the cost by the monthly savings, you arrive at the break-even point, which in this example is about five years. If you plan to keep the loan longer than that, the Point payment will pay for itself.
Sometimes a lender will use the term Origination Points instead of Origination Fee. This is still the same loan origination fee, not the interest rate reduction fee; it’s just a different way of expressing the same percentage. The CFPB requires lenders to list loan origination fees and Discount Points separately on the Loan Estimate so you can tell the difference.
Who pays the origination fee?
In the vast majority of cases, the borrower pays this fee. It’s included as part of the Closing Costs in Section A of your Loan Estimate and then shown again in the Closing Disclosure before you sign.
There are a few ways to avoid paying this fee directly out of pocket:
- Seller Concessions: In markets that favor buyers, sellers sometimes agree to pay some or all of the origination fee as part of the purchase negotiations.
- Lender Credits: You can accept a slightly higher interest rate in exchange for a credit from the lender that offsets the origination fee; conceptually, this is the opposite of a Discount Points deal.
- Add it to the loan amount: In some refinances, this fee is added to the loan balance instead of being paid at closing.
Generally, loan origination fees should not increase between the Loan Estimate and Closing Disclosure, except in certain circumstances, such as a change in the loan amount or a change in your chosen loan program. If the amount increases for no apparent reason, it’s worth challenging it.
How to Negotiate Loan Origination Fees
- Get more than one Loan Estimate. Loan origination fees vary significantly between lenders, even for the exact same loan. Having two or three offers gives you real negotiating power, not guesswork; if you’re not sure how to read or compare them side by side, it helps to consult with a mortgage expert before you sign anything.
- Ask if the fee is a flat rate or a percentage. This changes the math for larger loans and determines whether it’s negotiable at all.
- Look at the big picture, not just this one line item. A lender who lowers the origination fee sometimes makes up for it in interest rates or services you don’t have the option to choose. Instead of comparing just Section A, look at the total of Section D in the Loan Estimate.
- Depending on how long you expect to keep the loan, consider trading the fee reduction in exchange for a slightly higher interest rate or vice versa.
- If you plan to stay in your home for a long time and the break-even calculation is in your favor, use Discount Points strategically.
- Ask about lender-specific loan programs that have lower origination fees, but read the other terms carefully, as lower fees sometimes come with perks in other areas.
- Leverage a strong credit history. Lenders are often more flexible in negotiating for borrowers who are less risky.
- Be prepared to walk away from the deal. A lender who is initially unwilling to negotiate will often change their mind when they learn you have a competing offer.
