What Is a mortgage origination fee?

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In a Nutshell

Lenders charge mortgage origination fees to cover their administrative and processing costs. The fee typically ranges from 0.5% to 1% of the loan amount.
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When taking out a mortgage, you’ll have to pay several fees to the lender, including a mortgage origination fee.

The mortgage origination fee is one of the costs you’ll pay at closing. It’s a fee the lender charges to issue the loan. The fee covers the cost of processing your application, underwriting the loan and other administrative expenses.

The mortgage origination fee can be expensive — as much as 1% of the mortgage amount — but you may be able to negotiate the fee or find loan options without origination fees.

What do mortgage origination fees include?

Buying a home is a major investment. And when you take out a mortgage, the lender takes on a substantial risk to issue the loan. To make the risk worthwhile, the lender charges interest and fees so they can make money.

Lenders charge a mortgage origination fee in exchange for underwriting and issuing the loan. The fee may include the following expenses:

  • Time and cost of processing your loan application
  • Underwriting the loan
  • Funding the loan
  • Other administrative expenses

How much are mortgage origination fees?

Mortgage origination fees can vary by lender and loan type, but the fee is typically between 0.5% and 1.00% of the total loan amount.

The fee can be substantial. The median home sales price was $379,100 as of January 2024. Assuming the home you purchase is that price, your origination fee could be between $1,895.50 and $3,791.

Fast Fact

Paying closing costs is one of the final steps in buying a home

Closing costs are typically 2% to 5% of the total home purchase price.

When do you have to pay the mortgage origination fee?

You will usually pay the mortgage origination fee upfront at closing. You can complete a wire transfer ahead of time to pay the necessary closing costs. Otherwise, you will need to bring a cashier’s check to closing to cover outstanding escrow expenses or closing costs that haven’t been rolled into your mortgage. 

Can you get the mortgage origination fee waived?

Mortgage origination fees — and other fees — are often negotiable. You can ask the lender to waive the fee or agree to a reduced rate.

If the lender isn’t willing to budge on the origination fee, you may be able to negotiate with the seller to have them cover some or all of the origination fee.

What to know about no-origination-fee mortgages

As you shop for a mortgage, lenders may advertise loans with no origination fees. However, that doesn’t mean that there is no fee at all. It’s just handled differently. These lenders typically do one of the following:

  • Add costs to the loan: Some fees are rolled into the loan, increasing your total loan principal to cover closing costs. Interest is calculated based on the total loan amount, so you’ll pay more over the life of the loan.
  • Increase the interest rate: The lender provides a rebate for closing costs. In exchange, the lender will charge you a higher rate on the loan. The loan may become more expensive overall, but the tradeoff can be worth it if you’re short on cash at closing.

Consider using a mortgage calculator to determine how rolling closing costs into the loan or increasing the APR can affect your total loan cost.

FAQs about mortgage origination fees

Can I finance a mortgage origination fee?

Some lenders allow you to roll the closing costs into your mortgage, including the mortgage origination fee. This will increase the loan principal, and the lender may charge you a higher rate.

Why do mortgage origination fees exist?

Lenders take on a significant amount of risk by issuing mortgages. Origination and servicing fees help produce income for the banks that offer mortgages, particularly home loans in government-backed programs, such as FHA loans.

Do I have to pay the mortgage origination fee?

Although mortgage origination fees are common, they are often negotiable — particularly for larger loan amounts. In some cases, the home seller may be able to cover your mortgage origination fee or other closing costs to increase the chances of a quick sale.
However, you have less negotiating power in a hot housing market, so work with your agent to create the best possible offer for your situation.

About the author: Kat Tretina is a personal finance writer with a master’s degree in communication studies from West Chester University of Pennsylvania. Obsessed with her many side hustles, she focuses on helping people pay down their … Read more.