What you Need to Know About Origination Fees
Lenders that Charge Origination Fees
Essentially all mortgage lenders charge for origination fees in one way or another. This includes banks, credit unions, and brokerages.
But what about mortgages that are advertised with $0 (zero) origination fees?
Let’s note first where these origination fees actually show up. That is, the actual fees that banks are referring to when they mention origination fees. Origination fees appear on your Loan Estimate. Precisely on Page 2 Section A. Origination Charges. If there is nothing in Section A, then one could technically state “there’s no origination fees.” However, in reality, the absence of these fees are factored into a higher interest rate and/or lower lender credits. In that sense a consumer will still pay for origination fees, it is just masked in one way or another. Advertising “no origination fees” is a cute way to draw attention, but as stated, you’re going to be paying elsewhere for it, perhaps even more in the totality.
What you Need to Know
Aside from knowing that every lender charges these fees, you should also know that origination fees can come in a variety of names. This makes it difficult to compare these charges from lender to lender. There is no set standard on how the fees are to be listed within Section A, and the stipulations for the naming of the fees are pretty much non-existent. Sometimes the name of a fee can vary by just adding or taking away a word, as you will see:
- Processing fee
- Loan Processing fee
- Underwriting fee
- Application fee
- Funding fee
- Document preparation fee
- Preparation Fee
- Office administration fee
- Administration Fee
- Rate lock fee
- Mortgage rate lock fee
- Broker service fee
These are just a few of the fees you may encounter. Generally a lender will have a combination of two or three of these fees. If you see any more than that, begin to start asking questions. It is not so much the name of the fees we need to be concerned with. But rather the total amount minus any points. A point is a percentage of the total loan amount that you pay for. Points are inversely related to the interest rate. Meaning lower the rate, higher the points (cost you pay for that rate.) This is why we need to subtract the points from the total in section A. so we can get an apples to apples comparison on origination fees.
The Loan Estimate
You should become familiar with a 3-page mortgage Loan Estimate as you will receive one from your lender for nearly every residential mortgage transaction. This is mandated by law for your lender to give you, and the format is standard making it (somewhat) easier to compare loans. I cannot emphasize enough the importance of the Loan Estimate because these are the numbers that will follow you to closing. Out of all the paperwork you submit and sign, it is these 3 pages that are a necessity to focus on. These 3 pages can seem overwhelming. Don’t make the same mistake the Andrews made. You can learn from them.