Decisions, paperwork and a barrage of terminology can make deciphering a mortgage offer cumbersome and confusing. Knowing the underlying principles of mortgages, the types of mortgages you can receive and common terms used in the financing process can help you make an informed financial decision when buying a home. Mortgage origination fees can vary significantly among lenders, so it's important to become familiar with the term and the general costs included before you evaluate loan offers.
Mortgage lenders use a variety of terms to refer to mortgage origination fees. Lenders can use the terms "underwriting fee," "processing fee" or "administrative fee" when referring to origination costs. While the terms vary, they all generally refer to the same types of fees charged by the lender for reviewing, preparing and evaluating your loan offer.
"Origination fee" is a comprehensive term that can include a variety of individual fees. Some common fees include a lender’s attorney fees, notary fees, document preparation fees and evaluation costs. Lenders may also build in funds for their overhead and may include broker fees and some closing cost expenses in their origination fee calculations.
Generally, origination fees are expressed as a percentage of the mortgage loan total. Some lenders will lump multiple fees under a general topic, while others may delineate each fee. Some fees may be negotiable. You can ask your lender to define and list each fee included in the origination fee calculation.
General conventional loans have few restrictions on the amount charged for origination fees. The fees are often set based on the competitive nature of the mortgage loan process. An exception to this is FHA-backed loans, which must conform to federal regulations and must not charge a higher price for a loan with low balance. Federal Housing Administration loans offered by a lender may not vary more than two percentage points in the same geographic area, and the actual variations must be due to differences in the lender’s costs.
Some lenders play with their rates by shifting point percentage fees, or prepaid interest, under origination fees. This practice can disguise the overall cost of a loan when compared with other loan options, especially if only interest rates and points are reviewed. When you review a mortgage offer, use a comprehensive analysis of the total cost of the loan, regardless of how the lender divides the expenses and fees.