What is an origination fee?

If you’ve gotten a mortgage before – or in the process of getting one – you might have looked at a loan estimate, or a loan quote from a lender. And on that second page of that loan estimate, if you had an official one or if it’s a quote – it’s typically still the second page on it – you might see lender costs and it breaks out some charges from a lender.

Now, we’ve got another good video that explains the three different ways lenders primarily charge you: through your interest rate, through any financing points, and through closing costs. Today, we’re going to focus a little bit on that lender closing cost.

When I’m talking about origination charges, it’s probably one of the most common charges that you’ll see on a loan estimate from a lender.

So, what is an origination charge?

Typically, that means it’s a cost to originate the loan.

Like you might hear the terms like ‘I am a loan originator, Evan Kaufman, your VA loan originator’ – that’s the term we typically use.

Or you might hear loan officer – that means you’re originating loans, meaning that you’re helping people get the loan paperwork put together, you’re talking about rates, you’re pinning them down, you’re making things happen. It’s originating a loan.

So, that origination fee is essentially, think of it as the cost of getting the loan together.

So, it’s a very common fee that you’ll see, and that’s just what it means, it’s hey, we’re charging X to get this loan put together.

Now, if you see nothing in that top section or no origination fee, that doesn’t necessarily mean you’re not getting charged to have the loan done – it just means it’s somewhere else.

And as we explained in that other video on what we like to call the three-way teeter-totter of interest rate versus finance points versus lender costs – that means that if you have no lender cost, no origination, and there’s some other charges you might see – like processing, underwriting, other terms like that, we can talk on other videos, but think of them all as kind of the same, origination, similar processing, similar underwriting.

If you don’t see those fees, that means they’re somewhere else.

That generally means they’re either baked into a higher interest rate on your loan, or you might be paying some finance points – just offsetting that higher interest rate that you would be having if you had no lender fees.

‘So, origination charges – are they really part of a loan? I’ve heard they’re junk fees from another lender.’

Well, no, they’re really part of the loan.

Like in our case, we can offer you an option where we have origination charges or we remove those, but we’re very honest and up front.

Hey, if you don’t want to have those origination charges, it’s perfectly fine, just know that it’s going to be adjusted somewhere else, typically in that interest rate.

If you want to accept those charges up front, you generally are going to have a better interest rate.

The thing is, a lot of lenders will kind of decide one way or the other, quote you super low rates but not tell you about the charges that are coming.

Or, they’ll charge you no fees and say, ‘hey, we have no fees, we have zero origination, zero underwriting, sounds great.’ But you got to ask yourself, how are you getting paid?

That’s one of the big questions out there, right?

Lenders got to get paid somehow, so origination fees, they’re real.

And if they’re not there, just know it’s generally somewhere else.

You may want to make sure you just talk with your lender.

Hey, are those origination charges, are those lender-paid closing costs built into the fees I got to pay at closing or in the interest rate, or you charging me some finance points to help offset it all?

My name is Evan Kaufman. I hope this helped just explain a little bit more to help you go out there and win a home with the VA loan. Take care.