Several factors play a key role in determining the best mortgage options and lenders. One such important factor is the loan origination fee. While the exact amount of the origination fee may vary, it is generally somewhere around 1% of the loan amount. Getting pre-approved for your mortgage is the best way to figure out the origination fee or at least a fair idea of the other costs involved.

So what are loan origination fees, and why are they paid?

Origination fees are charges that mortgage lenders assess. They do this to process a loan. The aim is to help them cover the processing, underwriting, and execution of loans. Loan origination fees can come up as a single entity or as multiple charges, lender-side costs for verification and preparation of documents.

Origination fees are generally paid as a part of the mortgage closing fees. Many mortgage lenders are willing to negotiate to reduce the origination fees. In a favorable market, you can even ask the seller to contribute to the closing costs. However, it is always good to compare the origination fees from multiple lenders before reaching a conclusion.

If you want to be sure, make it a point to read the loan estimate thoroughly.

This will give you a complete overview of the origination fees and any additional costs while closing. There are also a number of no origination fee lenders. However, they might not always automatically be the best deal. It is highly possible that such lenders have a higher interest rate, leaving you paying more over the lifetime of the loan.

Thus, an origination fee is merely the cost to the lender to set up the loan and barely accounts for 0.5% to 1% of the total loan.

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