Origination fee
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An origination fee is a payment associated with the establishment of a new loan. This fee is paid to the bank (or perhaps the broker) that provides the loan or services associated with taking out a loan.
The fee usually varies from 0.5% (half a point) to 2% (two points) of a given loan amount, depending whether the loan was originated in the prime or the subprime market. For example, an origination fee of 2% on a $200,000 loan is $4,000.
Most banks and brokers charge an origination fee. Some loan structures also call for discount points. Discount points differ from origination fees. Discount points are used to buy down the interest rates, temporarily or permanently. In other words, in exchange for paying a lump sum up front, the interest rate will be reduced. Origination fees and discount points are both items listed under lender-charges on the HUD-1 Settlement Statement.
A broker fee or loan origination fee is paid to the person handling a loan application. This fee can be a set price or can be stated as percentage of the loan amount. The origination fee should be located at the top of a "good faith estimate" and should be disclosed within 3 days after applying for a home loan. They must be disclosed on the "good faith estimate" and on the final closing papers, commonly called the HUD (short for "HUD-1 Settlement Statement").
In most cases, one has to pay other fees in addition to origination fees.
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