What Is A Mortgage Origination Fee?

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Chris JenningsDeputy Editor, Loans & Mortgages

Chris Jennings is a writer and editor with more than seven years of experience in the personal finance and mortgage space. He enjoys simplifying complex mortgage topics for first-time homebuyers and homeowners alike. His work has been featured in a number of outlets, including Yahoo Finance, MSN, Fox Business, and GOBankingRates.

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Chris Jennings

Chris JenningsDeputy Editor, Loans & Mortgages

Deputy Editor, Loans & Mortgages

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Updated: Sep 29, 2023, 9:39am

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When you take out a home loan, you pay the lender an origination fee to cover the cost of processing the loan. This is typically a combination of fees for underwriting, processing and issuing your loan. Here’s what you need to know about mortgage origination fees and who’s responsible for them.

What Is an Origination Fee?

An origination fee is a combination of processing and closing costs charged by the lender. These fees may include the cost to the lender of processing the loan, preparing documents, conducting an appraisal review, administration charges and more.

Lenders charge these fees because when you apply for a mortgage, they have to verify all of the documents you’ve submitted and your proof of income. While credit scores are important, lenders want to see that you earn enough, and consistently, to pay your mortgage on time for the life of the loan.

Tip: The IRS considers origination fees to be points, so they’re tax deductible. Even if the seller ends up paying these costs, you can still deduct them from your taxes.

Average Mortgage Origination Fee

Mortgage origination fees are generally 0.5% to 1% of the value of the loan. For instance, a $400,000 home loan could have a fee ranging from $2,000 to $4,000 fees.

But mortgage origination fees are just one part of the overall closing costs, which can range from 3% to 6% of your loan amount.

Who Is Responsible for Paying the Origination Fee?

Generally, the homebuyer pays the origination fee, but some fees, like the title fee, can be negotiated with the lender or seller. When you’re evaluating how much you want to spend on your future home, however, you should always consider the extra costs of these fees.

For example, if the home is in your price range without the origination fees, you may want to ask the seller if they’re willing to share those fees with you so you don’t blow your budget.

When You’ll Need to Pay an Origination Fee

You’ll need to pay the origination fee at the time of closing or it may be rolled into the cost of borrowing the loan. How exactly that works depends on the preference of both the borrower and the lender. However, you may also decide to choose a different date in the month for the closing.

You may decide to close earlier in the month or later in the month, depending on when you want your mortgage payment due and how much you want to pay when. Before deciding on a closing date, you should check with your lender on what both your first mortgage payment would be and closing costs based on different closing dates. You’ll want to know when these payments would be due if you buy mortgage points as well.

When You Might Not Need to Pay an Origination Fee

You may not have to pay mortgage origination fees if you negotiate with the seller to pay all or part of the fees. You could also avoid paying an origination fee if the mortgage is a no-fee mortgage.

Can You Get a No-Fee Mortgage?

A no-fee mortgage is a mortgage where the lender doesn’t charge you closing costs. This may seem like an automatic savings, but not necessarily. Although the lender will agree to pay the fees in a no closing cost mortgage, they’ll make up for it by charging a higher mortgage interest rate. This means you’ll pay more in interest over the life of the loan.

Let’s say on a mortgage with no fees, the interest rate is 0.5% more than a mortgage where you’d pay the fees yourself. In this situation, you’d be better off with the mortgage where you pay the fees—since you’d be paying that 0.5% once as upfront closing costs instead of paying 0.5% with in interest on your mortgage each year.

Mortgage origination fees are an important consideration in evaluating the initial and long term costs of a loan. So be sure to do your research and compare loans from multiple lenders so you can find the mortgage that works for you.

Related: Best Mortgage Lenders