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loan origination fee and can it be negotiable?
A mortgage comes with several fees. The most common fee is the loan origination charge, which your lender charges for processing your loan and sometimes underwriting it.
These fees are usually 1% to 1% of the total loan amount. However, each lender will vary in their exact costs.
Get preapproved for your mortgage loan to get an idea of the loan origination fees. This will give you an idea of the total cost of your loan, both long-term and at closing.
What are Loan Origination Fees and How Do They Work?
A loan origination charge is a fee that a mortgage lender charges to process your loan. It is usually about 1% of the total loan amount.
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Most lenders charge origination fees in order to cover the costs of processing, underwriting and executing your loan.
These fees may appear as one origination fee, or as multiple charges such as an underwriting fee and processing fee. Origination fees can be used to cover many costs associated with the lender, such as:
- Verify your income and employment
- Processing of your application and supporting documentation
- Preparing your mortgage documents
- Your loan will be underwritten
There are different fees associated with loan origination. Costs can be affected by the loan amount, type, credit score and presence of a cosigner.
These fees are often broken down by mortgage lenders on your Loan estimate. This will be provided to you when you are pre-approved. A breakdown of your costs will be provided no later than three business days before closing.
What are the fees for loan origination?
Your origination fees will be paid at closing, as part of your total closing cost.
Other fees associated with closing costs include:
- Prepaid interest is the interest that covers the time between the close of business and the close of the month.
- You can use discount points to reduce your interest rate by paying an upfront fee
Lenders may offer credit to offset certain or all of these expenses in some cases.
Can loan origination fees be negotiated?
Many of the fees charged by lenders and origination fees can be reduced. You can lower your origination fees by:
- The lender can reduce the fees simply by reducing them
- Lender giving credit to offset part or all of origination fees
- To reduce your upfront costs, you can take a higher interest rate
If you have any remaining up-front costs, ask the seller to pay your closing costs. Market conditions will affect your chances of getting seller contributions.
Compare quotes from various lenders
The fees for mortgage origination, rates, terms and other fees vary widely from one company to another. Before you decide who to work with, it is important to compare quotes from at least three lenders. This will enable you to compare rates and fees, and make the right decision.
You will be better prepared for negotiations if you get a few more quotes. Showing your mortgage expert a quote form another lender can help you lower your fees when negotiating fees.
Read Your Loan Estimate Carefully
After you have chosen a lender, make sure to carefully read the Loan Estimate. The Loan Estimate outlines all fees that you will have to pay at closing. This includes the origination fee. Although this fee covers many of the services associated with your loan they are often negotiable. Ask your lender to reduce or credit your costs, especially if it’s your first home purchase .
Common costs for your lender to process your loan are the loan origination fees. They are usually one percent of the loan amount and can often be reduced. Discuss your mortgage lender’s origination fee with them and make plans to pay this additional closing cost before you move into.
