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:

  • Appraisal fee
  • Credit report fee
  • Recording fee
  • Prepaids (interest, homeowners insurance, mortgage insurance, property taxes)
  • HOA dues
  • Title insurance
  • Title settlement and other fees
  • Attorney fee

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.