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What Is a Loan Origination Fee?

January 9th, 2018 7:36 AM by Jackie A. Graves

A loan origination fee is not a single fee, but actually a set of lender-specific fees that are part of your costs when closing a mortgage loan. Let’s take a closer look.

Mortgage fee disclosures: loan estimate and closing disclosure

Federal law requires that all consumers receive the same rate and fee disclosures at the beginning and end of every mortgage transaction.

The Loan Estimate is the disclosure you get at the beginning of the process, and the Closing Disclosure is the one you get at the end of the process.

The Loan Estimate is three pages, and the top of page two has a section called Origination Charges, which are the fees charged by the lender.

The Closing Disclosure is five pages, and the top of page two also has a section called Origination Charges, making it easy to confirm whether the lender fees you were quoted on the Loan Estimate are the same before your loan closes. The Closing Disclosure also specifies whether Origination Charges are paid by you (the borrower), the seller of the home you’re buying, or anyone else.

What’s included in “Origination Charges”?

This category includes lender fees for underwriting and processing your loan. Every lender is slightly different in how they label their fees in this section, so the names you might see in this section are:

  • Underwriting fee
  • Processing fee
  • Application fee

Some lenders combine all of these into one single fee, and some break them out.

One thing all lenders will show consistently here is whether they’re charging a percentage of the loan amount as an additional fee on top of the fees noted above. These fees are also known as “points,” and should be labeled as points on the Loan Estimate and Closing Disclosure.

Points are an extra fee you pay for a lower rate. You aren’t required to pay points, so ask your lender to explain the rate difference between points and no-points options, and also ask them to tell you how long it will take the rate savings from paying points to repay the cost of the points.

What other fees should I prepare for?

Origination Charges are just the lender fees for obtaining a loan, but there are other fees for obtaining a loan, which also show up (under Origination Charges) on the Loan Estimate and Closing Disclosure as follows:

  • Services Borrower Did Not Shop For: These fees include a home appraisal, credit report, flood certification fee (to determine if your home is in a flood zone), and tax status fee (to determine tax base and payment status on property). Lenders choose these service providers, which is why this category is labeled as such.
  • Services Borrower Did Shop For: These fees include pest inspections, lender’s title insurance, and escrow or attorney fees required to settle the transaction. Borrowers can shop for these service providers, which is why this category is labeled as such.

Beyond lender fees, there is another section on page two of the Loan Estimate and Closing Disclosure called Other Costs that captures all other non-lender fees associated with a mortgage transaction, including:

  • Property transfer taxes, transactional recording fees, and other government fees
  • Prepaid items like paying prorated mortgage interest when closing in the middle of a month, and homeowners insurance and property taxes that may be due at the time a transaction closes.
  • Home inspection fees
  • Real estate agent commissions
  • Owner’s title insurance
  • Homeowners association dues if the property is a condo or a planned unit development

The Loan Estimate and Closing Disclosure forms are very clear about showing totals for all of these various categories of closing costs.

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Posted by Jackie A. Graves on January 9th, 2018 7:36 AM


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