Everything You Need To Know About Loan Origination Fees
When shopping for a loan, whether for a home or rental, the goal is to find the best deal possible. As you review your loan’s APR, you may notice a list of fees alongside your interest rate. Often, the origination fee is the highest aside from your interest rate. This is because originations fees can vary widely from lender to lender—but what is this fee, and why do you have to pay it? To help you shop for the best deal, let’s review what you need to know about loan origination fees.
What Is an Origination Fee?
In simple terms, an origination fee is the amount a lender charges to process an application. Essentially, it’s a compensation fee for processing, funding, and underwriting. It can also include costs for scheduling appointments, printing and filling out paperwork, and other jobs and processes that come with setting up your loan. Ultimately, it’s a way for the lender to make money, and this also helps them provide more financing options to others.
How Much Do Origination Fees Typically Cost?
Naturally, you’ll want to look for a lender with the lowest origination fees possible, but the problem is that these fees can vary widely. This fee can range from 0.5 to 1 percent of the total loan cost. The average home loan is roughly $250,000. That means that at minimum, you’d typically be paying $1,250, and at maximum, $2,500. This high price is part of what makes understanding your loan’s APR so important, as signing off on the wrong loan can put you over budget.
Why Do I Have To Pay an Origination Fee?
One of the biggest reasons why you have to pay an origination fee is due to underwriting. Underwriting is the process of accepting the inherent risk that comes with lending someone money. It also includes how they ensure that you qualify for the loan.
How Can I Save on Origination Fees?
While there’s no way to avoid origination fees entirely—after all, you can’t expect the lender to work for free—there are things you can do to save money. One of the most important things you need to know about loan origination fees is that they are negotiable, and most people aren’t aware of this.
Typically, you can do so by accepting a higher interest rate in return. You can also negotiate with the home seller to have them pay the origination fee in whole or in part if. Typically, the seller will only do so if they’re in a particular bind to get rid of the property. Lastly, if you have a really good credit score, they may be willing to ease up on the fees in return for your business.
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