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When you bought your home, you might have thought the listing price was the total amount you’d spend. But additional closing costs come with buying a house, particularly if you took out a mortgage. One of those costs is a loan origination fee.

So, what is a mortgage origination fee, and who has to pay it?

Origination fee rates and even who foots the bill can depend on your market and lender. To help you navigate this aspect of closing, we break down everything you need to know about origination charges, who pays them, and how to make sure you’re getting the best rate.

What is a loan origination fee?

Your lender's work in reviewing, approving, and executing your loan might not be immediately apparent. But there are many steps they must complete after you submit your application for a mortgage. This process is called underwriting and can include:

• Verifying the borrower’s information (like your down payment and savings)
• Investigating the borrower’s financial health (like your debt-to-income ratio, employment and credit history)��
• Ordering a home appraisal

In exchange for this labor, your lender charges an origination fee. This fee is usually billed as a percentage of the total value of the loan and is paid by the borrower up front at closing.

An origination fee may also be referred to as a “point,” typically when it amounts to 1% of the borrowed total.

Learn more about discount points and lender credits here.

How much are loan origination fees?

The cost of loan origination fees has varied throughout the decades. The late 1990s and mid-aughts saw the highest rates, with origination fees costing 4% to 5% of the total loan amount.

Today, origination charges have shrunk to 0.5% to 1%, thanks to laws passed in response to the 2008 financial crisis. These laws restructured how lenders can be compensated for their work and, paired with public demand for lower rates, led to a drastic reduction in origination fees.

Let’s assume that you are taking out a mortgage for $400,000 and that you’re charged a typical rate of 0.5% to 1%. You would pay between $2,000 to $4,000 in origination charges.

That kind of money adds up fast, especially if you aren’t expecting it. Review your loan estimate closely to ensure you don’t get caught off guard by these extra costs at closing. Your lender will include your origination fee — the rate and total amount — in their estimate, and will share it with you again in the closing disclosure you receive three business days before your home sale closes.

Who pays them?

The borrower most commonly pays origination fees upfront as part of their closing costs. In some instances, though, a seller might pay all or part of the loan origination fee as a concession made in order to sweeten the deal of their home sale.

These types of concessions can vary by market. If you want to avoid paying an origination fee, ask your real estate agent if there is a precedent for this type of seller concession. If so, they will be able to help you negotiate better terms with the sellers.

Learn more about seller concessions here.

Are loan origination fees negotiable?

Who pays loan origination fees is certainly negotiable, especially when sellers need to compete for limited buyer demand. And if you’re really savvy, you might even be able to negotiate the origination fee with your lender.

Unfortunately, you probably won’t be able to get rid of it entirely, though. While lenders generate revenue through the interest they charge, origination fees pay for the customer service aspect of their services. So, you will likely end up paying something.

Still, it’s worth asking. Here are some tips for negotiating origination fees:

• Work with your lender: Your lender is your ally in the homebuying process. Ask them to walk you through your charges and what other options are available to you.
• Compare quotes: Origination fees are set by the lender and can vary between mortgage companies. Get quotes from multiple lenders before deciding who to work with. Not only will this help you understand what a reasonable baseline is, but it can also provide you leverage at the negotiating table.
• Know what’s negotiable: Some lenders have become wise to shrewd borrowers negotiating down high origination fees. To make their fees more palatable, lenders will sometimes break up origination charges into different fees. Don’t be fooled: All of the fees under section A “Origination Charges” of your estimate are negotiable.����
• Roll your costs into your mortgage: If you simply can’t afford to pay closing costs — like origination fees — upfront, you may be able to negotiate them into your mortgage. Ask your lender if you’re eligible for a no-closing-cost mortgage, which charges a higher interest rate in exchange for your lender covering your closing costs.

No origination fee mortgages

Rather than negotiate down your origination fees, you may want to work with a lender who doesn’t charge them at all. But it might not be that simple.

No-fee lenders are hard to find, and while they might not charge you a fee upfront, they likely bake their origination costs into interest rates or other fees.

To avoid overpaying for your loan, shop around for a lender. You can ask for a loan estimate with your application to get a sense of what you’ll pay and for what. Plus, having loan estimates from competitors can be a good way to negotiate with the lender you choose.