For many first-time homebuyers, buying your first home may be overwhelming and all of the costs and fees involved may be confusing. But what exactly is a Loan Origination fee? It’s something every homeowner should understand when buying a house and the good news is, it’s not as complicated as you may think.
An origination fee, is a fee that a lender or bank charges a borrower to complete the loan transaction. This can include underwriting, administrative, processing which can consist of the paperwork, verifications and calculations that are completed during the loan process.
How much does an origination fee cost? Homebuyers may pay 1% of the loan amount in the form of an origination fee. For example, if you receive a loan for $400,000, a 1% origination fee would come out to be $4,000. In other cases, lenders will charge a flat fee, so the amount of the origination fee won’t change regardless of the loan amount.
Are mortgage origination fees negotiable? In some cases, it may be possible to negotiate the origination fee during the loan process. If you think your estimated closing costs are too high, you can ask your lender what you can do to reduce it. An option that may be provided to you is for you to take a slightly higher rate in exchange for lower fees at closing, which may mean that you are paying more interest over a longer period of time in order to reduce your up-front costs. Make sure to look at all of your options to figure out what will work best for you.
Are origination fees tax deductible? You may be able to use this for tax deductions, but it will depend on the terms of the mortgage. If it is deductible, it can be deducted either the year the loan was first taken out or each year over the course of the loan. Be sure to consult a tax professional for tax advice.
What you need to know before paying a loan origination fee: Keep in mind that loan origination fees must be paid in full at the time of your loan closing. This usually isn’t an enormous cost, but it’s something to keep in mind when you’re discussing with your mortgage lender.
You should also know what your credit score is before you start this process. A good credit score may help you get a lower origination fee and an even higher credit score may be a better negotiating tool when you’re bargaining with your mortgage lender.
If you have questions about Loan Origination fees contact a New American Funding Loan Officer today!