What is a loan origination fee?

A loan origination fee is the upfront fee from the lender charged for putting together, processing and approving your mortgage. This is part of how lenders make money. Origination fees are typically 1-2% of the total value of your loan and this amount is included as part of your closing costs.

Shopping around

The easiest way to pay a lower origination fee is to shop your mortgage around to multiple lenders and see who is offering the best deal. Perhaps Lender A has the best loan rates and terms but the highest origination fee. You can try showing them the lower origination fee from Lender B and ask for it to be adjusted.

Work on improving your credit score

Not all borrowers pay the same origination fee. If you have weaker credit, you present a risk to the lender, so they’ll charge a higher upfront fee to protect themselves against default.

The higher your credit score, the lower your origination fee. While building great credit takes time, there are a few ways to bump up your score quickly:

• Pay off credit cards and other loans to improve your debt to income ratio and credit utilization. If you can’t pay them off, try to at least get balances down.
• Get a copy of your credit report and search for errors, dispute any errors with the credit bureau.
• Contact creditors and ask to have a late payment removed from your record. Even if the late payment was legitimate, they may still do it for you if you’ve been a good customer since then and always paid on time.

Don’t forget about the big picture

When you’re shopping for a mortgage, try not to get hung up on one fee or one aspect of the terms. You need to compare the entire loan package and how it relates to your personal finances. The loan with the highest origination fee might still be the best loan for your situation. Working with an experienced mortgage broker can help with this process.

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