A mortgage origination fee is one of many charges a mortgage lender can impose on you, for the privilege of borrowing from them. Here’s what you need to know about how the origination fee on a mortgage works, how much it costs and whether you can negotiate it.

Key takeaways

  • A mortgage origination fee is a fee you pay at closing to cover the cost of processing and funding your home loan.
  • Usually, it's about 0.5 to 1 percent of the loan amount.
  • If you pay for discount points, that cost may be included in the origination fee.
  • You may be able to negotiate with the seller to have them cover some or all of the origination fee.
  • Some lenders offer mortgages with no origination fees, but these often compensate with higher interest rates.

What is a mortgage origination fee?

A mortgage origination fee is a fee that lenders charge for originating, or creating and processing, your home loan. The origination fee can cover a number of services, including opening the loan, processing and underwriting. This fee is one of the ways lenders make money.

Your lender generally breaks down the expenses that go into the origination fee on your loan estimate, under the “Origination Charges” section.

How much is a mortgage origination fee?

The origination fee on a mortgage is typically 0.5 percent to 1 percent of the amount you’re borrowing. The average origination fee for a mortgage for a single-family home is about $1,852, according to the latest data gathered by the Consumer Financial Protection Bureau.

You’ll find all origination charges on your loan estimate in the top section (“Origination Charges”) of the second page. For example, you might see total origination charges at $1,141, broken down as:

  • Courier fee: $25
  • Document preparation fee: $200
  • Processing fees: $395
  • Tax service processing fee: $86
  • Underwriting fees: $435

If you agreed to pay points (which you can choose to pay in exchange for a lower interest rate), you’ll also see the cost for these points in this section. For each point you buy, you’ll typically pay 1 percent of the amount you’re borrowing, for which the lender will reduce your interest rate by 0.25 percent.

When do you pay the mortgage origination fee?

You’ll typically pay the mortgage origination fee, along with your down payment and other closing costs, when you close your loan — and your home purchase.

Your lender will tell you how much money you’ll need to provide in the form of a cashier’s check, wire transfer or other secure payment method, and you’ll see a total breakdown of all fees and other charges on your closing disclosure, which you’ll receive at least three days prior to the closing.

Many lenders allow borrowers to roll closing costs, including the origination fee, into their loan. This might be an appealing option if you don’t have enough cash on hand to pay these costs (plus the down payment). That’s because the no-closing-cost option comes with higher monthly payments and interest charges over the life of your loan, since you’re now financing those fees.

Do all lenders charge an origination fee?

There are a couple of situations where you can avoid paying the origination fee and even some other closing costs.

For example, while negotiating with a seller, you might be able to request certain concessions, one of which being that the seller pays a portion or all of your closing costs.

You can also request lender credits, which is when the lender agrees to absorb some or all of your closing costs in exchange for a slightly higher interest rate.

In either situation, it’s important to consider all of your options and weigh the potential drawbacks against the benefits. With lender credits, for instance, think about how long you’ll stay in the home and how much the higher rate will cost you compared to how much you’re saving upfront.

Other costs associated with a mortgage

There are many other fees you’ll likely pay during the mortgage process and at closing. Some of the more common fees include:

You might also see certain so-called “junk” fees: fees that are either unnecessarily high or unnecessary entirely. Take a look at your application fee, underwriting fee, rate-lock fee, processing fee and broker rebate to determine if they’re comparable to the fees you see with other lenders. If you believe they’re too high, contact your lender to find out if you can reduce or eliminate them.

Origination Fee FAQs

  • When you apply for a mortgage, the lender doesn’t just take a quick look at the paperwork and approve or deny your loan. Processing a mortgage takes a lot of time and effort. On top of looking at all of the documents you provide, the lender needs to draw up paperwork and spend time digging into your credit history.

    Of course, all this time and effort comes at a cost. Lenders pass this cost on to borrowers through origination fees.
  • Any fee in the origination charges section of your loan estimate is negotiable. It’s especially important to talk with the lender as you compare loan offers, when you have the same or similar quotes from multiple lenders. You can use other offers to convince your preferred lender to reduce its origination charges. There’s no guarantee that the lender will budge, but the more offers you have, the more leverage you’ll have. And if you don’t ask, you’ll never get.
  • Yes, if you agree to the loan. It’s part and parcel of it.

    Some mortgage lenders offer no-cost mortgage loans where the lender absorbs some of the closing costs associated with originating the loan. In exchange, the lender typically charges a higher interest rate, so you’ll eventually pay those costs (and possibly then some). In some cases, the lender might add a prepayment penalty on these types of loans. That way, the lender doesn’t miss out on that profit, even if you don’t stay long enough to pay for it through the higher rate.

    Some online mortgage lenders might not charge any lender fees, including origination fees, because they rely heavily on automated processes during underwriting and have no branch locations to maintain. In other words, they can afford to cut out fees because their costs are lower than a brick-and-mortar operation’s. In many cases, these lenders charge lower rates than competitors, giving them an advantage from a cost perspective.
  • You could ask family and friends to cover the fee for you, making it part of a gift. You can also try negotiating a seller concession, in which the seller pays the fee for you.

    Many homebuyer down payment assistance programs also include help with origination fees and other closing costs — especially if those geared towards first-time homebuyers — as their aim is to reduce the out-of-pocket expenses.

Additional reporting by T. J. Porter