Origination fee
An origination fee is the lender's charge for making a loan: taking the application, underwriting it, and funding it.
It is frequently quoted as a percentage of the loan amount — one percent on a $300,000 loan being $3,000 — and sometimes as a flat sum.
What it buys#
The loan. Nothing else.
That distinction from discount points matters and is easy to miss, because both are quoted the same way. Discount points purchase a lower interest rate for the life of the loan. An origination fee purchases the transaction.
A quote listing "2 points" without saying which kind is a quote worth questioning.
It is negotiable#
More often than borrowers assume, because it is lender compensation rather than a third-party cost.
A title search costs what the title company charges. A recording fee is set by the county. An origination fee is set by the lender, and a lender competing for a loan can choose to reduce it.
The leverage comes from having written offers. A borrower with three Loan Estimates in hand is in a materially different negotiating position from one with a single quote and a deadline.
Zero tolerance#
A protection worth knowing about.
Under the disclosure rules, lender charges including the origination fee sit in the zero-tolerance category. They generally cannot increase between the Loan Estimate and the Closing Disclosure without a valid changed circumstance.
Where such a charge does increase, the lender must cure the difference — which is a real remedy and one of the reasons to compare those two documents line by line rather than only checking the cash to close.
Rate versus fees#
The comparison that decides which loan is actually cheaper.
A lender quoting a low rate with a high origination fee and a lender quoting a higher rate with none can produce very different total costs, and the direction depends on how long the loan is held.
The APR folds specified fees into an annualised figure and makes the comparison possible. The five-year cost comparison on page three of the Loan Estimate is often more useful still, because most loans do not run to term.
On investment property lending#
Origination fees are generally higher on investment property, DSCR loans, and anything short-term.
On hard money they are quoted as points and are a substantial part of the total cost — which is why the effective cost of a short-term loan has to be calculated over the actual holding period rather than read off the rate.