Source: Fortune —
For most prospective home buyers, obtaining a mortgage is an essential part of the home buying process. And getting quotes from multiple lenders in order to ensure you secure the most competitive and affordable mortgage possible is nearly as important as searching for a new home.
While mortgage shopping, it’s important to keep in mind that there are a variety of costs tacked onto your home loan by lenders that are known as origination fees. These fees cover the expense of making the loan, and by law, lenders are required to provide an upfront estimate of how much these added charges will be.
What are mortgage origination fees?
Origination fees are costs that a lender charges in order to establish your mortgage. They are part of your loan closing costs as a home buyer and are designed to cover the many administrative costs associated with originating a new loan.
These fees typically include such items as document preparation, underwriting, appraisal costs, credit reports, tax research, and more. In many cases, origination costs amount to about 0.5% to 1% of the loan amount, though, depending on the lender, they may be less.
“While most of what a lender makes in revenue or profit is on the back end when the loan is sold in the secondary market based upon the interest rate, that revenue does not cover all the expenses and the profit margins most lenders need to operate,” says Mason Whitehead of Churchill Mortgage. “As a result, it’s necessary to charge some [origination] fees upfront to offset the costs of processing, underwriting, and keeping the lights on.”
Most common origination fees
The exact list of origination fees may vary slightly from lender to lender, and some lenders may use different titles for specific fees. However, some of the most common origination fees generally include:
- Processing or underwriting: This fee is designed to cover the lender’s costs of gathering the required documentation to process your loan.
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