Navigating the landscape of mortgage costs can be complex but understanding what you’re paying for—and why—can make a significant difference in your home buying experience. A common question I am asked is, “Do you have an origination fee?” Let’s break down what this fee is, what it includes, and the differences between a bank’s and a broker’s origination fees, helping you make informed decisions in your mortgage process.

I am Richard Woodward, Branch Manager and loan originator with NEXA Mortgage. I work for the nation’s largest mortgage broker and have closed thousands of loans over the years.  I switched from a banker to a broker to provide my clients with transparency, faster service, the most options of all lenders, and lower rates and fees.  Today we are going to find out how to evaluate origination fees.

What is an Origination Fee?

An origination fee is charged by a lender to approve and close a new loan application. It’s compensation for the service of preparing and evaluating a mortgage loan. Origination fees often encompass application fees, credit check fees, underwriting, and sometimes even commission for the loan officer. They’re usually a percentage of the total loan amount, typically ranging from 0% to 3%.

What Does an Origination Fee Cover?

This fee is quite comprehensive. It covers:

• The loan application process
• Credit checks and financial assessments
• The underwriting of the loan, which includes verifying your income, assessing credit risk, and ensuring the property details are accurate
• The closing of your loan and transmitting it to the end investor
• Loan officer and broker compensation for their work and expertise

Typical Origination fees will include:

• An Origination fee, if charged (lender or loan officer earnings)
• Discount points, if applicable (a fee to buy down the rate for the life of the loan)
• Processing Fee (paid to assist the loan officer with collection, interpretation and packaging the paperwork)
• Underwriting Fee (paid to cover salaries of the people that evaluate and approve or deny loans)
• Application fee ( This is a junk fee and I would avoid any company that charges you anything up front other than a credit report fee and an appraisal fee)

I am proud to tell my clients that The Richard Woodward Team NEXA Mortgage doesn’t charge underwriting fees or processing fees to our client which 

Origination Fee: Banks vs. Brokers

Banks and brokers have distinct models for their services, which extend to how they apply origination fees.  I have worked as a banker and a broker in my 23 years of originating mortgages, so I am familiar with both models.

• Bank Origination Fee: Often a flat percentage, banks might have a higher origination fee as they normally have a captive audience of depositors, and they don’t offer a full suite of services under one roof.
• Broker Origination Fee: Brokers may charge a lower fee or sometimes none at all, as they can receive payment from the lenders they shop for the borrower or directly from the borrower for a lower rate. They provide the benefit of shopping your loan application around to multiple lenders to secure competitive rates.  At NEXA Mortgage, we have over 200 of the nation’s top lenders competing for your loan so you save!

Pros and Cons of Paying an Origination Fee for a Lower Rate

Paying an origination fee can sometimes secure you a lower interest rate on your mortgage depending on the lender making the offer, if you are talking to a bank or banker, you definitely should get a Second Opinion. Here are the pros and cons of this approach:

Pros:

• Lower Interest Rate: A lower rate could translate to significant savings over the life of your loan.
• Long-Term Savings: For those planning to stay in their home long-term, the upfront cost can be outweighed by the ongoing savings on interest.
• Tax-Deductible: In some cases, origination fees and discount points can be tax-deductible, adding to the potential savings.

Cons:

• Upfront Cost: It adds to your initial costs, which may be a concern if cash is tight at closing.
• Break-Even Period: It may take a few years to recoup the costs through the savings on your lower interest rate.
• Less Benefit for Short-Term Ownership: If you plan to sell or refinance in the short term, you might not stay in the home long enough to benefit from the reduced rate.

My Stance on Origination Fees

I believe in transparent and fair pricing. My approach to origination fees is to ensure they’re reasonable, justified, and in the best interest of my clients. I’m committed to offering competitive rates with the understanding that each client’s situation is unique. I am here to walk you through every fee, step by step, to ensure you make the best financial decision for your mortgage needs.  Every client will receive a customized mortgage rate analysis that shows 2-4 mortgage options and evaluates them for saving in the short term and long term.  Ultimately, I want you back when rates change or when you decide to purchase again.  I want to help you build wealth with real estate.

Conclusion

Origination fees are a standard part of the mortgage business, but that doesn’t mean they should be shrouded in mystery. I am dedicated to providing clarity and value in all our services. Whether you’re buying a new home, refinancing, or just exploring your options, I am here to offer expert guidance tailored to your financial goals.

Ready to learn more about your mortgage options without hidden fees and jargon? Reach out today for a transparent, personalized, and hassle-free mortgage experience.  I welcome your questions and your reviews.  Read my reviews now.