If you've ever gotten a mortgage, you probably already know that they can be quite expensive. If you're purchasing a home, not only will you need to bring in your down payment, but you'll also need to pay for a whole host of closing costs. If you're refinancing, you may discover that thousands of dollars of closing costs are being rolled into your new loan balance. One particular closing cost that borrowers commonly question are origination fees. So what exactly are origination fees? What are they for, and why are they charged?
What Are Origination Fees?
The reason lenders charge origination fees is to help cover their overhead. There are a lot of people involved in making a mortgage loan happen, which is why so many closing costs are charged to begin with. It takes third-party title representatives, escrow officers, government recording, credit reports, appraisers, tax certification, flood certification, home inspectors, etc. to get a mortgage loan done. Lenders also have in-house processors, underwriters, loan officers, and funders they need to pay for as well. These in-house services are usually covered by origination fees.
Origination fees are also used to cover costs for certain interest rates. One of the trade-offs in mortgage financing is rate versus costs. In other words, the lower the rate the higher the cost. This is why it is so important that when you shop for a mortgage you shop for both rate and cost.
If you have certain risk factors such as low credit scores, limited equity, or you're taking out cash, additional pricing adjustments may apply that could increase the cost of your mortgage. These extra pricing adjustments, called loan-level pricing adjustments, or LLPAs, are usually charged as part of the origination fee.
If you've received a mortgage quote with a very large origination fee, it might be worthwhile taking a slightly higher interest rate and letting the lender absorb all or part of the origination fee for you. Remember, the trade-off in mortgage financing is cost versus rate. If you are being charged a lot of costs, it might be worth it to take a slightly higher interest rate and allow the lender to pay more of your closing costs.
Mortgage lenders are required to disclose all closing costs to you on a document called the Good Faith Estimate, which must be sent to you within three business days of completing your loan application. Any origination fees the lender is charging will be disclosed at the top of page 2 of the Good Faith Estimate.
Origination Fees Are Often Negotiable
Because origination fees are charged by the lender to help cover their overhead, they often can be negotiable. The best time to ask for a reduced origination fee is at the end of the loan process right before closing. Lenders don't get paid on the loan until the loan is completed, so once the loan is nearly done they are very motivated to finish it.
We can't guarantee that they'll say yes 100% of the time, but it absolutely doesn't hurt to ask.
What Are Origination Fees?
The reason lenders charge origination fees is to help cover their overhead. There are a lot of people involved in making a mortgage loan happen, which is why so many closing costs are charged to begin with. It takes third-party title representatives, escrow officers, government recording, credit reports, appraisers, tax certification, flood certification, home inspectors, etc. to get a mortgage loan done. Lenders also have in-house processors, underwriters, loan officers, and funders they need to pay for as well. These in-house services are usually covered by origination fees.
Origination fees are also used to cover costs for certain interest rates. One of the trade-offs in mortgage financing is rate versus costs. In other words, the lower the rate the higher the cost. This is why it is so important that when you shop for a mortgage you shop for both rate and cost.
If you have certain risk factors such as low credit scores, limited equity, or you're taking out cash, additional pricing adjustments may apply that could increase the cost of your mortgage. These extra pricing adjustments, called loan-level pricing adjustments, or LLPAs, are usually charged as part of the origination fee.
If you've received a mortgage quote with a very large origination fee, it might be worthwhile taking a slightly higher interest rate and letting the lender absorb all or part of the origination fee for you. Remember, the trade-off in mortgage financing is cost versus rate. If you are being charged a lot of costs, it might be worth it to take a slightly higher interest rate and allow the lender to pay more of your closing costs.
Mortgage lenders are required to disclose all closing costs to you on a document called the Good Faith Estimate, which must be sent to you within three business days of completing your loan application. Any origination fees the lender is charging will be disclosed at the top of page 2 of the Good Faith Estimate.
Origination Fees Are Often Negotiable
Because origination fees are charged by the lender to help cover their overhead, they often can be negotiable. The best time to ask for a reduced origination fee is at the end of the loan process right before closing. Lenders don't get paid on the loan until the loan is completed, so once the loan is nearly done they are very motivated to finish it.
We can't guarantee that they'll say yes 100% of the time, but it absolutely doesn't hurt to ask.
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