What is a loan origination fee?

A loan origination fee is a specific charge that lenders impose for the processing and creation of a new loan application. This fee compensates the lender for the administrative tasks associated with evaluating and approving a mortgage, such as underwriting, document preparation, and ensuring compliance with regulations. It is typically expressed as a percentage of the total loan amount.

In the context of real estate finance, understanding what a loan origination fee entails is essential for borrowers. It appears as part of the closing costs, influencing the overall expense involved in obtaining a mortgage. Because it is directly related to the loan approval process, differentiating it from other fees such as those for closing services, appraisals, or prepayment penalties is crucial for evaluating total loan costs accurately.