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Eric Wu, Home Buyer in Russian Hill, San Fr...

How much should an origination fee on a new loan be?

Asked by Eric Wu, Russian Hill, San Francisco, CA Wed Dec 21, 2011

In escrow on a multi-family housing property and in my HUD, the origination fee (not points to buy down the loan) is $1400. Is this standard/typical?

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BEST ANSWER
Hi Eric-

The origination fee can vary from lender to lender. What did your agent tell you? One thing you could do is call various other lenders and ask them what their loan origination fees are so you can compare. This is always a good idea before you chose a mortgage person so you can compare apples with apples.

Best of luck.

Rich Bennett, Realtor
415.305.4911 cell

http://www.76-78Prosper.com http://www.115-117States.com

Zephyr Real Estate
DRE#01358540
1 vote Thank Flag Link Wed Dec 21, 2011
Hi Eric,

You cannot just consider origination fee alone when getting a loan from a direct lender or a mortgage broker. Going directly to a bank you may not get charged an origination fee but they may charge you discount points to get a certain competitive rate. Or their interest rate will simply will be higher than you could get with a mortgage broker. You might save the $1400 origination fee but you will pay many times that if your rate is even half a percent higher over the course of the mortgage loan.

What I have found is that a good mortgage broker (who can shop your loan around) can almost always get you a lower rate than if you go with a direct lender. The money he can save you can be as much as $10,000 even over the first 10 years of a mortgage loan. Saving THAT much money is always worth the $1400 origination charge that the broker will charge you.

Here is an example:

I just looked up the rates on a big bank’s website (Bank of Somewhere) today 12/21/2011. For a $250,000 mortgage loan they are showing a 30 year mortgage can get a rate of 4.125% with .875 points. Those points on a $250,000 loan will cost you: $2,187.50. (250,000 x .00875). While they are not calling it an origination fee they are still charging you $2,187.50 to get a loan with an interest rate of 4.125%

As a mortgage broker, I have a lender that I work with whose rate today is 3.625% for a 30 year fixed loan. There are NO POINTS to get this rate but I may charge an $1875 origination fee. Already by going with a broker (as in this scenario) you are saving $312. (2187.50 – 1875).

However, the real savings will come after you realize how much that ½ a percent in interest rate is going to save in 10 years.

A payment on a $250,000, 30 year fixed loan at 4.125% is $1,211.62 a month (principal and interest).

A payment on a $250,000, 30 year fixed loan at 3.625% is $1,140.13 a month. (principal and interest).

That is a difference of $71.49 a month. Or, $857.88 in one year. And, $8,578.80 in 10 years. And finally, $25,735.40 in 30 years.

So, by paying attention more towards who can get you the LOWEST RATE, rather than what the origination charge or points makes much more financial sense when shopping for a loan.

I hope this helps you make a good choice in financing your loan.

Take care,

Andrew
2 votes Thank Flag Link Wed Dec 21, 2011
Eric- Origination fees on brokered loans are usually included in their rate. Most mortgage bankers/brokers do not charge an application fee as most banks and credit unions which may vary from $395 to $795. With a mortgage banker you may find loan programs that your or your realtor could not find on their own. Many of those products may be a better fit your specific needs, at lower pricing.

As a rule, origination fees are dependent on the loan amount ranging from 1% to 4% of the loan amount. To better understand how a loan is priced and what your ultimate rate may be from lowest to highest is one of the pages I have on my website for borrowers like you can be more informed to arrive at their ultimate decision. "Risk Based Pricing" can be found in Chapter One on my website. Link is provided below. Best wishes.

Happy holidays, Rudi
Web Reference: http://www.umboc.com
1 vote Thank Flag Link Wed Dec 21, 2011
Nothing is standard.

You can shop for a mortgage and get that with whomever you want (Federal law!).

Maybe the real estate agent was being conservative with the costs (which is a good thing).

You can get a live rate quote from my site at usloans.com

Fred Glick
Licensed by the California DRE #01507615
Web Reference: http://usloans.com
1 vote Thank Flag Link Wed Dec 21, 2011
It could be. An origination fee typically ranges from .5% to 1.0% of your loan amount.
1 vote Thank Flag Link Wed Dec 21, 2011
Thanks for your responses. It sounds like:

- It varies from mortgage broker to mortgage broker
- There is a possibility of no fees are associated if you can get a loan directly from the lender
- If you are using a mortgage broker, fees can range from 0.5% to 1% of the loan amount.

Generally, shop the loan around to ensure competitive pricing on fees and rates.
0 votes Thank Flag Link Wed Dec 21, 2011
It depends on the loan product. A direct lender typically does not charge an origination fee, but may on some products that certain features. My advice is to pay close attention to the specific product, and the APR rather than the fees which vary from lender to lender.
0 votes Thank Flag Link Wed Dec 21, 2011
Sounds like the lender fees that include underwriting and/or processing. These are disclosed as an orig charge. To answer your question further on how much an orig charge (buydown) should be, depends on the break even point between a fee and no fee.
0 votes Thank Flag Link Wed Dec 21, 2011
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