What Is a Loan Origination Fee
You probably heard about “loan origination fees” before, but do you actually know what they are? This fee, determined by the lender and charged for processing your loan application, is an important one when it comes to thinking about which loan to take out. Let’s take a look at what this fee is, how to get the best deal and whether you can avoid it or not.
A loan origination fee is an amount determent by a lender for processing your loan application. This fee is charged either as a percentage of a loan amount or as a flat fee. Typically, these fees are paid at the closing and can be anywhere from 0.5% to 5% of a loan amount. Loan origination fees are just one of the costs associated with taking a loan. Other expenses include appraisal fees, title insurance, and closing costs. All of these fees add up quite a bit and also vary depending on the lender you choose so be sure to shop around for a bit and compare all of them to get a good deal.
How Are Loan Origination Fees Determined?
When thinking about taking out a loan being aware of these fees is a must so you don’t get surprised when there is nothing to be done. Being familiar with them gives you an opportunity to negotiate with a lender.
A loan origination fee is a rate lender determines for processing your loan application and approving it. It’s typically a percentage of a total loan amount but can be given as a flat fee. They are paid and closing and while the amount can vary there are a few factors they are based on such as:
- The type of loan you’re applying for – the more complex the loan is to process the higher the fee is. Mortgage loans have higher fees than other loans.
- The size of a loan you want to take out – larger loans come with higher origination fees
- Creditworthiness- if a borrower has a good credit score it is possible to negotiate with a lender on these fees. Lenders will see them as lower-risk investments and will be willing to budge a little on this.
If you are unsure how much will a certain lender charge in these fees be sure to ask before agreeing to a loan. Knowing how much you’ll need to pay in total will help you budget it all in your monthly expenses and avoid any unpleasant surprises down the road.
Is Loan Origination Fee Negotiable?
Loan origination fees are just one of many costs associated with taking out a loan. Borrowers are typically charged origination fees as a percentage of their loan amount, and they can vary a lot.
While these fees are usually categorized as non-negotiable, there are some exceptions. If you have a good credit score lender will see your loan request as low-risk and give you a chance to talk about these fees. But don’t forget that some lenders will be less likely to give you this chance so choose wisely.
Lenders ask for origination fees to cover the cost of processing and approving your loan, but there are some loans without this fee. If you choose to take out no-cost or low-cost loans you will be able to save on these expenses but be careful because these loans, come with higher interest fees to make up for no initial charge. Depending on the loan type you choose these low-cost can be a good idea and save you money in the long run.
Take into consideration all we talked about above and choose a loan deal that fits best to your circumstances.
How Much Is a Typical Loan Origination Fee?
Once you apply for your desired loan an origination fee will be charged. These fees vary depending on the loan you’re trying to take out and the lender you chose.
The average loan origination fee ranges from 1% to 5% of the total loan amount. Let’s say you want to take out a $200,000 loan, your fee can be anywhere from $2,000 to $10,000. Some lenders do charge a flat origination fee regardless of the amount you want to take out and this will be stated on your contract. Many people preferer percentages and not this flat fee because they feel like they’re paying more if the fee is flat, but be careful and calculate what exactly you’ll be charged depending on the percentage you get.
If you want to take a mortgage loan origination fee can be anywhere from 0.5% to about 1% and as for the personal loan origination fee, it typically ranges from 1% to 8%. In case you are planning to get a personal loan keep in mind there are lenders offering no origination fee personal loan, so be sure to check it out if you don’t mind a bit higher interest rate.
Even if you get too confused with all the different percentages associated with this loan, know there are many loan origination fee calculators offered online by various lenders so you can calculate it yourself. Also, there is always an option for amortizing loan origination fees if you have any troubles with paying them.
This fee is not the only one you will need to handle if you are thinking of taking a loan. Be careful and budget all the necessary expenses so you don’t end up halting on your loan. You can always ask your lender about all these fees and get the exact amount it will cost you.
Who Usually Pays for the Loan Origination Fee?
This fee is assessed by the lender and it’s on a borrower to pay it off. In some cases, the origination fee may be rolled into the loan or paid by the real estate agent out of commission.
Final Thoughts
The loan origination fee is an important part of taking out any loan. This fee varies depending on the lender you choose, the loan you want to get, and the current market condition. Make sure to always ask your lender about the fees associated with a loan so you can get a clear picture of everything you need to pay. Understanding different fees and knowing how to budget everything will help you pay off your loan in full with no additional charges.
There are many different lenders and many offers to choose from so this can get pretty overwhelming. Be sure to talk to your financial advisor as it can be beneficial for you in choosing the best deal your wallet can handle.
