Mortgage Origination Fee: The Inside Scoop

When funding your mortgage loan, a mortgage lender assesses your qualifications before deciding whether to approve the loan. In exchange for giving you a mortgage to buy or refinance a home, lenders charge a variety of fees that ultimately help them provide more home financing to other borrowers. One of these fees is the mortgage origination fee.

We’ll review the mortgage origination fee (or lender origination fee), how to calculate it and when you pay it. We’ll touch on why they exist, whether all lenders charge origination fees and some factors to look out for when comparing lender costs.

What Is A Mortgage Loan Origination Fee?

A mortgage origination fee is a fee a lender charges to cover the cost of processing a borrower’s loan application. It’s typically between 0.5% and 1% of the total loan amount. You'll also see other origination charges in your Loan Estimate and Closing Disclosure if prepaid interest points are associated with getting a particular interest rate.

Mortgage Loan Interest Discount Points

Also called mortgage points or discount points, prepaid interest points are points paid in exchange for a lower interest rate. One point equals 1% of the total loan amount, but you can buy points in increments of 0.125%.

If you're trying to keep closing costs at bay, you can also take a lender credit, which amounts to negative points. You get a slightly higher rate in exchange for lower closing costs. Rather than pay closing costs upfront, you can roll some or all closing costs into the loan.

The lender origination fee covers a variety of costs, some of which may be broken out in your Loan Estimate. The fee covers the steps of processing your application – collecting all documentation, scheduling appointments and filling out all necessary paperwork – as well as underwriting the loan.

What is Mortgage Underwriting?

Underwriting is the process of verifying that you qualify for a loan. The underwriter must verify all income and asset documentation and any other requirements associated with the loan. Lenders also verify that the property meets the loan’s requirements, including coming in at the right value and being safe. Estimating the value of the home is done in conjunction with an appraiser.

How Much Are Loan Origination Fees?

A loan origination fee is typically expressed as a percentage and can cost between 0.5% and 1% of the total loan amount plus any mortgage points associated with your interest rate.

For example, if a borrower gets approved for a $300,000 mortgage, the lender origination fee would be anywhere from $1,500 to $3,000.

When Do You Pay The Mortgage Origination Fee?

Mortgage loan origination fees are usually paid as part of closing costs, which may include the following, depending on whether the transaction is a purchase or refinance:

Mortgage Lender Origination Fee

The fee can cost anywhere between 0.5% and 1% of the total loan amount before prepaid interest points and covers the cost of processing and underwriting your loan.

Application Fee

Lenders often treat this fee a bit like a deposit. You get it back if the loan closes, but if it doesn’t, you may lose a portion or the entire fee. That’s because lenders often apply the application fee toward covering the cost of an appraisal or credit check.

Appraisal Fee

If it’s not covered by the deposit or not covered in full, you’ll pay separately for the cost of any home valuation and safety check. If the lender must determine the boundaries of the property, a survey fee may roll into this.

Credit Check

You’ll pay for the credit check at closing if it isn’t covered by your application fee. The credit report fee is typically $50 – $100, depending on the lender.

Mortgage Insurance

With Federal Housing Administration (FHA) loans, an upfront mortgage insurance premium gets paid at closing. U.S. Department of Agriculture (USDA) loans charge an upfront guarantee fee or funding fee, which works similarly to mortgage insurance. In both cases, a percentage of the total loan amount is paid at closing.

If you get a conventional loan with a down payment of less than 20%, some lenders will allow you to pay for mortgage insurance upfront, effectively lowering your monthly mortgage payment.

VA Funding Fee

Department of Veterans Affairs (VA) loans don’t have mortgage insurance, but there is a funding fee that’s anywhere between 1.25% and 3.3% of the loan amount, depending on the size of your down payment, your service status, whether it’s your first time using a VA loan and whether it’s a purchase, refinance or VA Streamline. The funding fee can be paid at closing or folded into the loan amount.

Borrowers receiving VA service-connected disability benefits, eligible surviving spouses of veterans and Purple Heart recipients are exempt from paying the funding fee.

Prepaid Mortgage Interest Points

If you buy down your interest rate, you’ll pay for the points at closing. By buying down your interest rate, you can save money over time.

Title Insurance

Although this cost is usually paid by the buyer, it can be negotiated. In all cases, either the buyer or seller must pay for a lender’s title policy, which protects the lender if someone else comes along with a claim to your home. The buyer can purchase an owner’s title policy, which also covers them in case something like this comes up.

Escrow Fees

An escrow account during the closing process helps protect home buyers and sellers by ensuring the money for closing costs isn’t taken out of the account without authorization.

Settlement Agent

The settlement agent oversees the closing and serves as a notary. They must make sure you understand what you’re signing and that everything goes smoothly.

Attorney Fees

In some cases, an attorney must be present at the closing in accordance with state law.

Accrued Interest

When you close on your mortgage, during the period between closing and your first mortgage payment, your lender will usually have you pay daily interest charges until your first payment.

Homeowners Insurance

You usually pay 6 – 12 months of homeowners insurance upfront and set up an escrow account, depending on the size of your down payment.

Property Tax

You must pay up to a year of property tax when you close on your mortgage. If you’re purchasing a home, you’ll also pay a property tax research service. The service estimates your property taxes as closely as possible so you don’t end up with surprise costs. The service will also let your mortgage lender know if you miss any property tax payments.

Recording Fees And Transfer Taxes

When you buy a home, your county or other local authority must record the transaction in the public register, and you must pay for that.

Real Estate Agent Commission

With a purchase, this is typically 6% of the purchase price, which gets split between both agents. While the real estate agent’s commission is often paid by the seller, who pays is negotiable, which is why we’ve included it here.