Origination Fee

Origination Fee

An origination fee is an upfront charge a lender assesses to process a new loan application. It compensates the lender for services such as processing, underwriting, and funding. In the U.S., origination fees are usually quoted as a percentage of the loan amount—commonly between about 0.5% and 1%—though they can be higher on smaller loans or under certain programs.

How origination fees work

• Calculated as a percentage of the loan (e.g., 1% of a $200,000 loan = $2,000).
• May be expressed as “points” or “origination points” when equal to 1% each.
• Can include bundled charges (application, processing, etc.); ask lenders for an itemized breakdown.
• Should appear on the closing disclosure and be set before closing.

Brief history and regulation

Before the 2007–2008 financial crisis, some lenders and brokers earned large origination fees and yield spread premiums by steering borrowers into higher-rate loans. Consumer protection rules and market changes since then have largely reduced extreme practices; origination fees today are typically much lower and more regulated.

Ways to pay origination fees

• Pay upfront at closing (cash or electronic payment).
• Roll the fee into the mortgage principal, spreading the cost across monthly payments (but increasing total interest paid).
• Seller concessions — the seller may agree to pay some or all closing costs.
• Lender credits — the lender covers fees in exchange for a higher interest rate.
• Builder or developer incentives for new-construction purchases.
• Closing-cost assistance programs (grants or low-interest loans), depending on location and eligibility.
• Negotiate directly with the lender or shop multiple lenders to obtain lower fees.

How to save or reduce origination fees

• Negotiate using competing offers as leverage.
• Accept a slightly higher interest rate in exchange for reduced or waived fees (via lender credits). This can be cost-effective only if you plan to sell or refinance within a few years.
• Ask the seller to contribute to closing costs.
• Ensure fees aren’t inflated by bundled charges—request itemization and ask for waivers on duplicated or unnecessary fees.
• Present strong credit, steady income, and a large loan amount to make your business more attractive to lenders.

Origination fees vs. discount points

• Discount points: optional prepaid fees paid to lower the loan’s interest rate. Each point typically equals 1% of the loan amount.
• Origination points (fees): charged to compensate the lender for processing the loan.
• Points reduce interest; origination fees compensate services. Points and origination fees can both appear on closing documents but serve different purposes.

Example

Loan amount: $250,000
Origination fee: 1.5% = $3,750

Options:
* Pay $3,750 at closing — loan remains $250,000.
* Roll fee into loan — new principal $253,750. On a 30-year fixed loan at 4%, the monthly payment rises from about $1,193 to about $1,208 (+$15/month), and you’ll pay interest on the added $3,750 over the life of the loan.

Common questions

• Are origination fees negotiable? Yes—many lenders will negotiate, especially if you have competing offers or strong credit.
• Can I roll the fee into my mortgage? Often yes, but it increases principal and total interest.
• Do fees vary by loan type? Yes—conventional, FHA, VA, and jumbo loans can have different fee structures.
• Are origination fees tax-deductible? Generally no. Some points may be deductible under specific conditions—consult a tax professional.

Bottom line

Origination fees are a common upfront cost that covers lender work to create a loan. They are often negotiable and can be paid in several ways. When evaluating mortgage offers, compare both upfront fees and long-term interest costs to determine the most cost-effective combination for your plans.