June 14th, 2019 9:16 AM by Jackie A. Graves, President
mortgage origination fee adds to a lender’s profit. But all lender fees can be
negotiated — another good reason to shop more than one lender.
mortgage origination fee is any fee that adds to the profit a lender can make
on a loan.
lenders are going to charge fees one way or another; that’s why it’s important
to shop for a loan from more than one mortgage provider. But it’s a bit of a
shell game: Are the fees included in the interest rate, as an extra charge over
on the fee sheet — or both?
And it’s not as simple as being just on the lookout for something
called an “origination fee.” There are dozens of names for these bolted-on
costs that can show up in your Loan Estimate as part of the loan’s closing costs.
interest rate already comes with some built-in markup for the lender. To help
make their interest rates appear more competitive, some mortgage companies will
charge additional lender fees instead of profiting only from the rate.
one way of framing the [loan] product to make it appear more attractive than it
is,” says Casey Fleming, a mortgage advisor who works in Silicon Valley.
shopping lenders, the key is identifying the fees that are valid, perhaps even
negotiable, and the fees that are tacked onto a loan to pump up a lender’s
You can find
these fees by reviewing the Loan Estimate that lenders are legally bound to
provide you after applying for a loan. It’s just three pages long, but the
section we’ll focus on is on the left-hand side of page two.
Look for anything that’s listed in Section A, Origination Charges,
of the Loan Estimate beyond the discount points you
can buy to lower your interest rate. This is where we’ll find the “junk” fees —
the add-ons a lender uses to make more money.
“Those are the
fees like origination fee, administration fee, underwriting fee, processing
fee, document preparation fee, appraisal review fee — all of these kinds of
fees,” says Carolyn Warren, a mortgage broker in Kirkland, Washington. “Some
lenders like to split out their fees into three or four categories so that no
one fee looks very high.”
lenders think that keeping fees under $1,000 may seem palatable enough that
borrowers won’t object to them, especially when they appear legitimate.
doesn’t mean the fees can’t be scrutinized or that you, as a borrower, should
feel uncomfortable about asking to have them removed.
fee in Section A “Origination Charges” is negotiable and part of the lender’s
profit strategy. And the larger the loan you’re seeking, the more leverage you
have to haggle fees — origination, junk or otherwise.
You can even
start negotiations before you get an official Loan Estimate. To do that, ask
each lender you’re considering: “If we proceed, what are all of the
‘origination charges’ that I will find listed on the Loan Estimate under Loan
Costs, Item A?” Use those exact words and get their response in writing.
people reject overpriced loans and junk fees, then they’ll go away,” Warren
says. “As long as they can get away with it, [lenders are] going to do it.”
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