Origination Fee

Origination Fee — lenders typically charge an origination fee expressed as a percentage of the loan amount, often ranging from 0.5% to 1.5% on conventional mortgages. This fee covers the lender's costs for evaluating the borrower's application, verifying documentation, and underwriting the loan. It is disclosed on the Loan Estimate and reflected in the APR calculation, which gives borrowers a more complete picture of the true cost of borrowing.

For secondary market note investors, the origination fee is already baked into the loan's history by the time a note trades. However, understanding origination fees helps when reviewing the original closing documents and HUD-1 or Closing Disclosure during due diligence. It also provides context for the borrower's initial equity position and can be relevant if regulatory compliance of the original loan is ever questioned.