Mortgages - Loan Origination Fees and Saving Your Money

Basics

A loan origination fee is a charge the lender makes for giving the loan to the borrower. This is an upfront charge, not like the interest rate which is the charge the lender makes over time.

A lender may charge an origination fee, but most usually do not charge more than 1%-2% of the loan amount.

Many lenders do not charge a loan origination fee, or only a very minor one. Fees that are a percentage of the loan amount can be quite large. A 2% origination fee is:

• $10,000 on a $500,000 loan
• $2,000 on a $100,000 loan

The origination fee in this case is based on the loan size. Reasons For Loan Origination Fees A loan origination fee may be charged by a mortgage lender as additional upfront compensation for lending to a risky borrower. This is a marginal borrower who has several factors working against their application, including:

• bad credit
• declining credit
• little assets
• little or no equity
• inability to document income
• inability to document employment

Better Deals People with good to great credit usually don't have to pay much on their loan origination fee. This fee may be dependent on the loan type or property type. There may be additional risk factors associated with the loan that the lender will want to be compensated up front.