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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 …….