What is a loan origination fee?

The loan origination fee is specifically defined as a charge by a lender for processing a loan application. This fee is typically calculated as a percentage of the total loan amount and covers the various expenses associated with evaluating, preparing, and funding the loan. For many lenders, this fee is part of the overall cost of obtaining the loan and can include administrative costs, underwriting expenses, and other related fees.

Understanding this fee is important for borrowers as it affects the total cost of borrowing. In some cases, borrowers might negotiate this fee or look for lenders that offer lower origination fees to reduce overall loan expenses. It’s critical to differentiate this fee from other charges associated with the loan process, such as closing costs, which encompass a broader range of fees.