Origination fee
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An origination fee is a fee for establishing a new loan. This fee is paid to the bank or your loan broker for his or her services in originating the loan.
The fee usually varies from 0.5% (half a point) to 2% (two points) of the loan amount, depending whether the loan was originated in the prime or the subprime market.
An origination fee of 2% on a $200,000 loan is $4,000. In some cases, one has to pay points plus origination fees.
Most banks/brokers charge an Origination Fee. As the name implies, it is a fee necessary to make the loan happen. Some loan structures also call for Discount Points. Discount Points differ from Origination Fees in that Discount Points are used to buy down the interest rates, temporarily or permanently. Origination Fee and Discount Points are both items listed under lender-charges on the HUD-1 Settlement Statement.
Broker or loan origination fee is paid to the person handling your loan application. This fee can be a set price or can be stated as percentage of your loan amount. The origination fee can be located at the top of your good faith estimate and should be disclosed within 3 days after applying for a home loan. Always ask your mortgage professional to quote rates with and without origination fees. Then, discuss your situation and determine which model best meets your needs.
Origination fees are charged by the lender or Broker and are expressed as a percentage of the loan amount. They must be disclosed on the Good Faith Estimate and on the final closing papers, commonly called the HUD (short for "HUD-1 Settlement Statement").
In order for any lender to originate a loan without an origination fee, the interest rate must be higher to make up for that loss of revenue.
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