Mortgage Origination Fees: How to Spot and Avoid Them

Mortgage lenders charge origination fees in exchange for processing and originating a mortgage loan. The exact amount of these fees varies by lender, but you’ll pay them as part of your closing costs when you finalize your home purchase or mortgage refinance.

What are mortgage origination fees?

Origination fees are designed to cover the processing costs associated with your mortgage and usually include costs like:

• Underwriting/processing fees
• Discount points

As a buyer, you’ll see origination fees listed on Page 2 of any loan estimate you receive (under the section titled “Origination Charges.” You’ll also pay origination fees if you apply to refinance your mortgage.

Tip: It’s important to note that while some of your closing costs can change between receiving your loan estimate and closing on your mortgage, your origination fee can’t increase except in limited circumstances (e.g. when you change your loan amount, down payment, etc.).

How much can the origination fee cost you?

Origination fees vary. Generally, though, they average around 0.5% to 1.5% of the total loan amount — so $1,000 to $3,000 on a $200,000 home loan.

Keep in mind that origination fees can consist of several different charges. Here’s a quick look at typical fees for each of these:

Learn More: Mortgage Points: What Are They and Are They Worth It?

Do you have to pay origination fees?

Origination fees have to be paid — but not necessarily by you. In some cases, you might be able to ask the home’s seller to cover these costs (called “seller concessions”). Sellers may be willing to foot the bill if:

• The home’s been on the market for a while
• There’s not much demand from other buyers
• The property is in disrepair
• They simply need to move on and cash out quickly

Lenders can also cover origination fees, though you’ll pay for this help down the line. In this scenario, the mortgage lender would give you what’s called “lender credits” to cover some or all of your closing costs, and in exchange, you’d agree to a higher interest rate or bigger loan.

Find Out: How Much Does It Cost to Buy a Home?

Ways to avoid paying the mortgage origination fee

There’s no way to avoid mortgage loan origination fees entirely. Whether you pay them with upfront cash or not, the charges will be paid somehow — either by the seller or through a higher interest rate or bigger loan amount.

There are ways you can lower your origination fees and make your home purchase more affordable, though. To do this, you can:

1. Shop around: Origination charges differ greatly from one lender to the next. Make sure you get loan estimates from at least a handful of lenders to ensure you’re getting the best deal on your origination fees.
2. Negotiate: Since origination fees are in-house charges, lenders actually have the power to negotiate on these. They might be more likely to do so if you have a great credit score or a large down payment (as this means you’re a lower-risk borrower and likely won’t default on your loan).
3. Ask for help: Aside from asking the seller or your lender for help, you might also ask friends and family to help offset some of your origination costs if you’re in a bind.

In some cases, a lender might not charge any origination fees at all. This is more common with online lenders that have less overhead than bigger banks and financial institutions (and it’s another reason why you must shop around when getting a mortgage pre-approval).