If you’ve been researching the home buying process you’ve probably stumbled upon the term origination fee. Mortgage origination fees are upfront costs that must be paid to the lender in exchange for originating your mortgage.
A Closer Look at Origination Fees
Like any commission-based payment, origination fees are represented as a percentage, typically between 0.5% and 1% of the entire home loan. If a lender charged 1% on a $200,00 loan, that means you would pay $2,000 in origination fees. Theses payments help support specific services such as processing, underwriting, and funding your loan. These percentage could skew higher on smaller loans. For example, and $75,000 mortgage requires the same amount of support as a $400,000 mortgage.
But each lender calculates the origination fees differently depending on a number of factors including loan amount, duration of the loan, borrower credit score and borrower credit history.
Saving on Origination Fees
Like closing costs, origination fees are often negotiable, depending on your lender. It’s common for borrowers to ask their lenders if any parts of the origination fees can be waived. However, a lender’s services should not be expected for free. Having reduced origination fees typically results in a higher interest rate. Although if you shop around for a better offer, you may be able to convince a lender to offer a discount on your fees without you receiving a higher interest rate.
If the seller is having trouble selling a house, or needs to sell quickly, you might be able to negotiate the seller into paying for the origination fees.
Borrowing a significant amount of money over a long period of time with a strong credit score could give the lender more incentive to decrease the origination fee payment.
Be sure to ask your lender what exactly is included in the origination fees. Sometimes additional costs are wrapped into the origination fees. You could find luck by asking to have those additional costs waived.