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.

Don’t we wish it were an Easy Answer

Wouldn’t it be nice if we could know for certainty we have a good interest on the largest purchase of our lives.  There are many factors that come into play when determining if your interest rate is good/fair.  Here is a list to show you a few:

  • Credit score
  • Type of loan (conventional, FHA, VA, cash-out refinance, rate and term refinance, ARM’s…)
  • Type of property (house, condo, manufactured home…)
  • Loan Amount
  • Purpose for loan (primary home, rental, 2nd home…)
  • Down payment amount
  • Price of the property
  • Origination charges the lender has
  • Points (usually a cost to lower the interest rate)
  • Lender credits (usually money received for accepting a higher interest rate)
  • If there is lender paid PMI
  • APR
  • State the property is in
  • Even the Zip code you are buying or refinancing in are all variables that come into play

Overwhelmed yet?

Keep in mind that just because one has a low interest rate, that does not necessarily mean that the loan is fair.  Mortgage fees and points can far out weigh any interest rate making a mortgage unfavorable.  In reality there is only one way to know for sure if your proposed mortgage is fair.  That is with an independent mortgage loan review that analyzes the quality of your mortgage Loan Estimate your lender will give to you.

It is all about the Loan Estimate

The mortgage Loan Estimate is a standardized 3-page document that your lender is required to give to you once they have received 6 key pieces of information.  Those 6 key pieces of information are:

  • Your name
  • Your income
  • Your social security number to pull credit
  • The property address
  • An estimated value of the property
  • and the desired loan amount

Mortgage lenders are not allowed to require you submit any documentation to verify such said information.  Meaning before they send you a Loan Estimate they cannot require you to submit bank statements, a purchase contract, pay stubs, etc…  Because of this it benefits a consumer greatly.  It allows a consumer the ability to quickly compare Loan Estimates from multiple lenders without being bogged down scrambling for paperwork.  Once a lender has those 6 pieces of information they must provide you a Loan Estimate within 3 business days.

Two other things that may better your loan

Aside from purchasing an independent Mortgage Review of your Loan Estimate you can do two other things that may better your loan.

  1. Negotiate
  2. Compare other lender’s Loan Estimates

Negotiating can save you some money.  Simply asking them to wave a fee is one way.  To be specific the fees that are negotiable are under section A of page two of your Loan Estimate (Origination Charges.)  It can be difficult to know if a fee is high or if there are excessive fees.  However ‘playing hard ball’ by requesting a fee to be removed is one way to get the upper hand when negotiating your mortgage.  Therefore, be careful that if a fee is removed the interest rate other origination charges have not increased on the Loan Estimate.

Comparing lenders can work by comparing multiple Loan Estimates.  Do you notice a theme?  Again, it is all about the mortgage Loan Estimate.  Because of this you may really need to educate yourself to be able to compare apples to apples.  Taking into consideration the interest rate, origination charges, points, any lender credits, and lastly the APR.  Most importantly the APR (annual percentage rate) can be used to compare the decency of a loan over the course of the whole term.

Conclusion: How to Help Ensure You Receive a Fair Mortgage Loan

In conclusion, paying for a third party service to analyze your mortgage Loan Estimate will ensure you get a fair deal on your mortgage.  It will help you in your negotiation knowing if the interest or fees are high and how to best proceed.  It will save you the time it takes and the education needed to compare multiple Loan Estimates.  The ultimate take away is that not all mortgage loans are they same.  There is a large variance among lenders, but with some elbow grease of your own or the use of a Mortgage Loan Review, you can save yourself thousands in needless interest.

High Hopes for a Fair Mortgage Loan and Great Home-Buying Experience

The Andrews were excited about buying a new home. After getting pre-approved for a mortgage loan, they found their dream home and made an offer that got accepted. The Andrews had a home inspection to make sure everything was in ship shape. “I’m sure glad we are not buying a lemon of a house,” Mrs. Andrews said to her husband.

Their loan officer gave the Andrews a Loan Estimate and explained to the them the cost of the loan and how the numbers on the estimate would be on their closing documents. Over the next 30 days the Andrews became overwhelmed with paperwork, their jobs and children and packing for the move. They wanted what began as a fun experience to be over with. Eventually they received a bottle of wine as a house warming gift and the keys from their Realtor.

Sobering Reality: Mortgage Loan Over-Payment

Did the Andrews make any mistakes? They followed the popular home buying process from getting pre-approved to having their home inspected to providing the necessary paperwork. Little did the Andrews know they overpaid by tens of thousands of dollars for their mortgage and would be struggling with high monthly payments for the next 30 years. Today they are stressed and feel they’ve been cheated.

How to Get a Fair Mortgage Loan and Avoid Over-Payment

What could the Andrews of done differently to avoid the pitfall of mortgage regret?

First Option: Negotiate Mortgage Loan Interest Rate and Fees

One way would have been to ask their lender for a lower interest rate or fees. Mr. Andrews did not realize he could have utilized his negotiating skills just as he had done before with the purchase of his minivan. He would of had to be careful, watching to ensure that when the interest rate was lowered there was not an increase in fees.

Second Option: Shop Around for a Better Mortgage Loan

A second way would have been to shop around. “We didn’t know this, we just figured all mortgages were the same,” Mrs. Andrews stated. Here again, the Andrews had to learn how to carefully compare multiple Loan Estimates. It would have been time consuming. In the end they may have saved money, but their mortgage may have been just less of a bad deal. “Is there a way to know for sure your mortgage is fair?” the Andrews cried out. Yes, it was the third available option.

Third, Better Option: Get a Mortgage Loan Review by a Professional Third Party Expert

The Andrews could have had a review of their Mortgage Loan Estimate. With an independent third party review they could have known for sure if their lender was treating them fairly. If something needed to be negotiated the Andrews would know exactly what it was and by how much it should be lowered. If need be, they could have found another lender that would match what they knew to be fair.

Conclusion: How to Help Ensure You Receive a Fair Mortgage Loan

The Andrews had a home inspection, but failed to get a ‘loan inspection,’ which would have prevented a lemon of a mortgage. “We wish we would have gotten our Loan Estimate reviewed,” the Andrews sadly admitted. Make use of the above three methods to avoid having mortgage regret like the Andrews. Additional information on Loan Estimate reviews can be found at MortgageLoanReviewUSA.com Ensure that your home loan is a fair home loan.