What is a mortgage origination fee?

A mortgage origination fee is a fee that most lenders charge for originating, or creating and processing, your home loan. The origination fee can cover a number of services, including opening the loan, processing and underwriting. This fee is one of the ways lenders make money.

Your lender generally breaks down the expenses that go into the origination fee on your loan estimate under the “Origination Charges” section.

How much is a loan origination fee?

The origination fee on a mortgage is typically 0.5 percent to 1 percent of the amount you're borrowing. For example, if you were to borrow $300,000, and your loan origination fee were between 0.5% and 1%, you would pay between $1,500 to $3,000 for your loan origination fee. But it's not always that cut-and-dry. In addition to the loan origination fee itself, your loan estimate might also list mortgage origination fee add-on charges. You can review these on your loan estimate in the “Origination Charges” section. These charges can include courier fees, document preparation fees, processing fees, tax service processing fees, and underwriting fees. These fees can vary, but usually are a nominal cost relative to the size of the loan. 

Who usually pays the loan origination fee?

Like many parts of an agreement to sell real property, this point is negotiable; however, it is far more common for the buyer (who would be responsible for the loan if they need a mortgage to acquire a property) to pay the loan origination fee under a Purchase and Sale Agreement.

When do you pay the origination fee?

The buyer pays the mortgage origination fee, down payment, and other closing costs on the date they close on the loan and purchase their home. This is commonly referred to as “closing.”  The mortgage loan originator will inform the buyer how much money will be required and provide instructions on using a secure payment method like cashier's check or wire transfer. The closing disclosure provides a complete breakdown of all the fees and other charges associated with the purchase; this is provided to the buyer at least three days prior to closing.

Many lenders allow borrowers to roll closing costs, including the origination fee, into their loan. This might be an appealing option if you don't have enough cash on-hand to pay these costs and your down payment and all the other expenses (moving, etc.) that come with a new home. These loans are often marketed as “no-closing-cost mortgages” — a name that's somewhat misleading. It's not that you have no closing costs; it's just that you don't pay them on closing day, but over the life of your loan.

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