6 Best Mortgage Lenders with Low Origination Fees of 2022

What is an origination fee on a mortgage?

The origination fee is what a lender charges you for giving you a mortgage — it's essentially a service fee, and one way that lenders make money. Another big source of income is profit that's built into the mortgage interest rate it offers you.

If a lender claims to offer no origination fee, proceed with caution. The fee may be baked into the interest rate, or it could show up under a different name, like an underwriting fee or an administrative fee.

You can find the origination fee and associated costs on the second page of your Loan Estimate. You'll get this document from any lender that has offered you mortgage preapproval, and it's a standard form, which makes them easy to compare. At the top left of page two, you'll see a box labeled "A. Origination Charges." Under that heading, you'll find lender charges, including the origination fee and optional mortgage points.

How much should origination costs be?

Origination fees are charged as a percentage of the loan amount, so they vary depending on the size of your mortgage and the percentage the lender charges you. Between 0.5% and 1% of the total loan amount is fairly standard. If you're taking out a loan for $250,000, your origination fee would probably be between $1,250 to $2,500. In 2020, the median origination fee paid on purchase loans was $1,349, according to Home Mortgage Disclosure Act data.

You can try to negotiate these costs. This is yet another reason having mortgage preapprovals can help, as you could try to convince a lender to lower its fees based on another lender's offer. In a buyer's market, you could potentially also negotiate to have a home seller chip in toward your closing costs.

When do you pay the origination fee?

You’ll pay the origination fee as part of your closing costs, once your loan has been approved and money's ready to change hands. No later than three days before closing, you'll get a closing disclosure that you should go over to check on all costs, including the origination fee. This form looks more or less identical to the Loan Estimate, except that it has real numbers instead of estimates. Compare the two forms to see how the costs may have changed. Some are easy to understand. For example, property taxes are prorated based on the closing date, and when you got the loan estimate, no one knew what day of the month that would be. If anything looks off, contact your loan officer to ask about it. That's why the three-day window is required.

Since the considerable chunk of change paid on closing day also includes your down payment, it's usually paid with a wire transfer or cashier's check to a third party (this is one type of escrow in real estate) rather than directly to the seller. Make sure to leave enough time to move all the funds you're using for your down payment and closing costs to an easily accessible bank account to avoid any last-minute holdups.

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