Loan Origination Fee Overview
The loan origination fee does not represent a single fee. It is a collection of fees specific to lenders that you pay when you close a mortgage loan. So let's have a closer look.
Disclosures About Mortgage fees: Closing Disclosure And The Loan Estimate
Federal law stipulates that every consumer receives the same rate and disclosure of all fees at the beginning and the end of each mortgage transaction.
The Loan Estimate is the disclosure that you receive at the beginning of your process. The Closing Disclosure, on the other hand, is the one that you get at its end.
The Loan Estimate has three pages. At the top of page 2, there is a section called Origination Fees. These are fees that the lender charges.
The Closing Disclosure has five pages. On page 2, there is a section called Origination Fees. This allows you to verify that the loan fees and lender fees included in the Loan Estimate remain the same after your loan closes. The Closing Disclosure also identifies whether Origination Fees are paid by the borrower, the seller, or anyone else.
What Is Included In The "Origination Fees"?
This section includes the fees charged by lenders for processing and underwriting your loan. Each lender will have a slightly different way of naming their fees in this section. The names you may see here are:
Underwriting fee
Processing fee
Application fee
Some lenders combine them all into one fee while others separate them.
All lenders will indicate that they charge a percentage of the loan amount in addition to the fees above. These fees are also called "points" and should be listed on the Loan Estimate Disclosure.
Points are an additional fee that you pay to get a lower rate. Points are not required. Ask your lender to explain the difference in rates between points and no points options. Also, ask them how long it will take for the rate savings due to paying points to be repaid.
How Much Should I Budget For Other Fees?
Origination charges are the fees charged by the lender to obtain a loan. However, there are additional fees that must be paid to get a loan. These fees are listed (under Origination Fees) on the Loan Estimate & Closing Disclosure:
Services Borrower Did Not Shop for: These fees cover pest inspections, lender title insurance, and any escrow fees or attorney fees required to settle the transaction. These service providers are available for borrowers to shop for, which is why the category is called such.
On page 2 of the Loan Estimate & Closing Disclosure, you will find another section called Other Costs. This covers all non-lender fees that are associated with a mortgage transaction:
Transactional recording fees and property transfer taxes are some of the other fees that government agencies can charge.
Prepaid items include prorated mortgage interest, homeowners insurance, and any taxes due at closing.
Home inspection fees
Real estate agent commissions
Owner's title insurance
If the property is a condominium or planned unit development, homeowners association dues
The Loan Estimates and Closing Disclosure forms provide clear information about the totals of all these different categories of closing costs.
