Mortgage Origination Fees Can Add Thousands of Dollars to Your Home Purchase. Here’s What You’re Paying For

A photo to accompany a story about mortgage origination fees Getty Images/Ed Freeman/Peter Dazeley
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For most people, a home is the most expensive purchase they’ll make in their lives. And the cost doesn’t stop at the price of the house — you’ll pay plenty of other expenses such as closing costs, taxes, insurance, and more.

Some of the expenses you’ll pay when you buy your home are origination charges, often known as origination fees. It’s important to understand how these fees work, because they can add thousands of dollars to your closing costs.

Here’s what to know about what these fees are, what they cover, and how you may be able to reduce them. 

What Is a Mortgage Origination Fee

A mortgage origination fee is any fee that a mortgage lender charges for processing a home loan. Referred to as origination charges in loan documents, they can include an application fee, underwriting and processing fees, and more. Some lenders may itemize these fees in your paperwork, while others may simply have a line item for all origination charges.

“Say you’re buying a half-million-dollar home and borrowing $400,000. The fee is based on that borrowed amount,” says Rogers Healy, a real estate expert in Dallas, Texas and the owner and CEO of The Rogers Healy Companies. “A typical fee ranges from 0.5% to 1% of the total loan amount. For a $400,000 loan, you’re looking at a $2,000 to $4,000 fee for processing the loan,” he says.

It’s important to pay attention to origination charges when you’re applying for loans and comparing offers. Just like interest rates, origination charges can vary from one lender to the next.

Who Typically Pays This Fee

As is the case with most closing costs, it’s the buyer who is responsible for paying any mortgage origination fees. When you apply for a mortgage, you’ll receive a three-page Loan Estimate that provides all of the necessary information about the mortgage. It includes the loan amount, interest rate, closing costs, and other terms.

“Buying a home is not necessarily a fun process, and when you go to borrow money to buy a home, the paperwork is like a full-time job. The origination fee is in there, in the paperwork, and as a part of the organic conversation,” Healy says.

Origination fees are generally paid at closing, along with any other closing costs. This additional time gives buyers the opportunity to prepare for and budget for all of the homebuying expenses. There will be documentation of your origination fees in the Closing Disclosure, which lenders are required to provide you with at least three days prior to your closing date. This five-page document includes much of the same information as the Loan Estimate, but with additional and more detailed information.

Pro Tip

The cost of home buying includes far more than the price of the home. Be sure to include origination fees and other closing costs in your homebuying budget.

Ultimately, it’s your responsibility as the buyer to make sure you read and understand all of the fees and terms of your loan.

“Being educated is important, and so is being prepared,” Healy says. “Do your homework whether you have a loan partner or not. The more information you have upfront, the easier the process will be,” he advises.

Other Fees to Look Out For

When it comes to buying a home, the origination fee is just one of the expenses you’ll run into. You’ll also be bringing money to the closing table for a variety of other fees and purposes.

Other common closing costs include:

  • Application and underwriting fees: The application and underwriting fees are paid to the bank for processing your application and underwriting the loan. These fees are a part of the origination charges.
  • Appraisal fee: An appraisal is necessary to determine the value of the home and ensure the bank isn’t lending more money than the home is worth. As the buyer, you’re responsible for paying for the appraisal.
  • Credit report fee: When you apply for the home, a lender will have to pull your credit report to determine whether you qualify for the mortgage. The credit report fee is a part of your closing costs.
  • Title fees: There are several different title costs required with the purchase of the home. These include title insurance and title searches. You’re generally required to buy title insurance for the lender, but title insurance for yourself is optional.
  • Taxes and government fees: When you close on your home, you are likely to pay recording fees and transfer taxes to transfer the home into your name.
  • Points: Mortgage points are a way for you to buy down your interest rate (pay more upfront for a lower rate over time). Points are entirely optional, but generally allow you to reduce your mortgage rate by a certain percentage — usually 0.25% — in exchange for a fee — often 1% of the loan.

Last, there’s a final category of costs known as “prepaids,” says Melissa Cohn, an executive mortgage banker who primarily operates in New York and Florida and the Regional Vice President of William Raveis Mortgage. “At your closing, you’ll make an interest-only payment from the date of closing for the balance of the month,” she says. 

“Prepaids also include the cost of the homeowners’ insurance and any real estate taxes that are due, and any money that goes into escrow if you’re going to escrow for taxes and insurance,” Cohn adds. 

Negotiating Fee Prices

Origination charges can add thousands of dollars to your closing costs, but they are negotiable. Just like you can shop around for and negotiate interest rates, you can also negotiate origination charges when you’re shopping for lenders

However, there are limits: “An origination fee paid directly to the lender can be negotiated in some cases,” Cohn says. “The rest of the fees are really non-negotiable. As lenders, we can’t charge a surplus on third-party fees. You pay the appraisal company what the appraisal fee is. You pay the title company the cost of the title searches, recording, and fees. The costs are pretty set in stone.”

Thankfully, there are other ways to reduce the amount of money you’ll need to bring with you on the closing day.

“What you can do is negotiate if you escrow or not, and if you choose not to, you don’t have to have those monies at the closing table,” Cohn says.

There also may be ways of working with a lender to reduce your upfront costs. For example, some lenders offer lender credits, which work the opposite of points. When you receive lender credits, you accept a higher interest rate in exchange for a rebate to offset some of your closing costs.

Ultimately, the costs associated with closing on a home are just some of the many expenses that come with home buying. As you prepare to buy a home, be sure to work those items into your budget so there aren’t any surprises when your closing date arrives.