A loan origination fee for a mortgage is a charge that lenders establish as compensation for setting up or processing your loan. This fee can range anywhere between 0.5% and 1% of the total loan amount. For reverse mortgages, that’s $2,500 or 2% of the first $200,000 of your home’s value. It’s also one of the various closing fees that borrowers will encounter. Keep reading for an in-depth look at home mortgage origination fees.
- Home mortgage origination fees are unavoidable, as they’re part of your loan’s closing costs.
- Origination fees for traditional home mortgages can range from 0.5% to 1%, and 2% to 2.5% for reverse mortgages.
- You can negotiate origination fees and other related closing expenses.
- There are many ways to save on loan origination fees. This includes comparison shopping and getting lender credit.
What is a loan origination fee?
A mortgage loan origination fee is a fee charged by lenders for processing your loan, gathering the proper documentation, filling out paperwork, and underwriting the loan. As an example, say you were approved for a $500,000 mortgage loan. The loan origination fees would range from $2,500 to $5,000, depending on the lender.
This type of mortgage loan fee is included in the Closing Disclosure, which is a form that details the loan terms, estimated monthly payments, and closing costs. This must be provided to you at least three days before your closing appointment. However, you won’t receive a Closing Disclosure for a HECM loan. Instead, you’ll receive a HUD-1 Settlement Statement and a final Truth in Lending Disclosure.
How much are loan origination fees?
Loan origination fees may range from 0.5% to 1% of the loan amount for home mortgages. In contrast, reverse mortgage guidelines state that origination fees can be between 2% to 2.5% of the first $200,000 of the property’s value. Keep in mind that this is just one of the closing costs that loan applicants will face. Other closing costs that you may see are escrow fees, appraisal fees, and recording fees.
In total, closing costs can range between 3% to 6% of the loan amount. You can lower these loan origination fees by taking advantage of lender credits. However, you’ll be accepting a higher interest rate in exchange for this tradeoff.
Are origination fees negotiable?
Yes, loan origination fees are negotiable. If you have higher origination fees, you can negotiate with your mortgage lender to bring them down. Most lenders are open to haggling, especially as the loan amount increases. While origination and underwriting fees are negotiable, not all closing costs are. Closing costs that you can’t negotiate include:
- Transfer taxes
- Appraisal fees
- Property taxes
- Recording fees
- Tax service fees
How to save on home mortgage origination fees
Origination fees, along with other closing costs, can add up to quite a bill. However, there are a few ways that you can minimize home mortgage origination fees:
- Compare loans: When you apply for a loan, lenders will provide you with a Loan Estimate to help you make a decision. You can compare the Loan Estimate with others you’ve received and move forward with the best one for you. If you’re applying for a reverse mortgage instead, lenders will provide you with a Good Faith Estimate (GFE) and an initial Truth in Lending disclosure.
- Get lender credits: Lender credits can help you lower your closing costs in exchange for a higher interest rate.
- Negotiate: You can negotiate origination fees and other related charges to reduce your overall closing costs.
- Pay upfront: If you have the resources, consider paying your origination charges upfront. This can also lower your interest rate.
Refer to our guide on the true cost of reverse mortgages to learn how much you can expect to pay in closing costs. You can also contact us to speak with a Reverse Mortgage Specialist that can walk you through the origination fees for your loan.