Origination fees 2.5%?

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Origination fees 2.5%?

Jonathan Riordan
New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes

I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

Thanks in advance! 

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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
3y
Quote from @Jonathan Riordan:
Quote from @Jay Hurst:
Quote from @Jonathan Riordan:

I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

Thanks in advance! 

 @Jonathan Riordan    The cost is just like the rate in that it depends on the details.  is this for a conventional loan?  Owner occupied or non-owner?  Credit score, down payment all play into the rate AND costs of a loan. It may very will be overpriced but no way to know without the details. 

Yes it is a conventional loan, owner-occupied, high credit score (near 800), 5% down, $220,000 loan! Thanks for all of the help. 

 @Jonathan Riordan    In that case, there is no reason you should HAVE to pay 2.5% in origination. You CAN pay that if you are buying down your rate significantly but again that should be your choice.  

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  • Mark MunsonBusiness Member
    Lender · Orlando, FL · Member since 2022 · 440 posts · 300 votes
    3y

    Hi @Jonathan Riordan

         2.5% isn't necessarily high. Most are between 1-3% on average. The size of the loan plays a factor too. The lower the loan amount, the higher the points too. We would need more context to tell you for certain, things like: credit score, loan size, asset type, refinance/purchase, etc. 

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  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Jonathan Riordan:

    I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

    Thanks in advance! 

     @Jonathan Riordan    The cost is just like the rate in that it depends on the details.  is this for a conventional loan?  Owner occupied or non-owner?  Credit score, down payment all play into the rate AND costs of a loan. It may very will be overpriced but no way to know without the details. 

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  • Keith Morrison
    Lender · Jacksonville, FL · Member since 2021 · 17 posts · 10 votes
    3y

    The lender I work for, we have an admin fee and processing fee that total around $1400, regardless of loan size. 

    I did recently purchase a STR through a broker and they hit me with a 3.5% origination fee.

    Mostly you see the origination fees with brokers. My company does loans in house so that is why we don't have a fee. 

    What state are you purchasing in?

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  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    3y

    @Jonathan Riordan that’s the going rate unfortunately.

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    It looks on par from what I have seen. 

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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Jonathan Riordan- 2.5% loan fee sounds normal for a rental property loan ....ask your lender for  other rate/ fee options  ....ask if they can offer a  higher note rate with a lower  loan fee  option ...good luck 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Jonathan Riordan

    What is the loan amount? That’s not out of ordinary but it’s on higher end

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  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Mark Munson:

    Hi @Jonathan Riordan

         2.5% isn't necessarily high. Most are between 1-3% on average. The size of the loan plays a factor too. The lower the loan amount, the higher the points too. We would need more context to tell you for certain, things like: credit score, loan size, asset type, refinance/purchase, etc. 

    That makes sense, thank you for the information. It is a $220,000 loan for purchasing a single family home and credit score is High. Glad to know that it is in the normal range. I think was just caught off guard when I saw a $6000 origination fee. 
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  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Jay Hurst:
    Quote from @Jonathan Riordan:

    I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

    Thanks in advance! 

     @Jonathan Riordan    The cost is just like the rate in that it depends on the details.  is this for a conventional loan?  Owner occupied or non-owner?  Credit score, down payment all play into the rate AND costs of a loan. It may very will be overpriced but no way to know without the details. 

    Yes it is a conventional loan, owner-occupied, high credit score (near 800), 5% down, $220,000 loan! Thanks for all of the help. 
    0Reply
  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Keith Morrison:

    The lender I work for, we have an admin fee and processing fee that total around $1400, regardless of loan size. 

    I did recently purchase a STR through a broker and they hit me with a 3.5% origination fee.

    Mostly you see the origination fees with brokers. My company does loans in house so that is why we don't have a fee. 

    What state are you purchasing in?

    Interesting. That sounds significantly cheaper than what I am currently going to be paying. I believe that is the way my previous lender had things structured as well which is why the $6000 fee is catching me off guard. I am purchasing in Georgia 

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  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Bud Gaffney:

    @Jonathan Riordan that’s the going rate unfortunately.


     good to know, thank you! 

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  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Eliott Elias:

    It looks on par from what I have seen. 


     good to know, thanks! 

    0Reply
  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Dave Skow:

    @Jonathan Riordan- 2.5% loan fee sounds normal for a rental property loan ....ask your lender for  other rate/ fee options  ....ask if they can offer a  higher note rate with a lower  loan fee  option ...good luck 


     great advice. Thank you for the input! 

    1Reply
  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Chris Seveney:

    @Jonathan Riordan

    What is the loan amount? That’s not out of ordinary but it’s on higher end


     the loan amount is $220,000. I gave some additional details in replies below as well. Thanks for the help! 

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  • Wendy S.
    Ellenwood, GA · Member since 2016 · 267 posts · 70 votes
    3y

    @Jonathan Riordan.

    I'm in GA,I would shop. For an owner occupied conventional, unless that $6K is for rate buy-down, I would expect better terms. My Lender has a $1,295 origination fee, regardless of loan size.

    1Reply
  • Michael Hutchinson
    Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Jonathan Riordan:
    Quote from @Jay Hurst:
    Quote from @Jonathan Riordan:

    I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

    Thanks in advance! 

     @Jonathan Riordan    The cost is just like the rate in that it depends on the details.  is this for a conventional loan?  Owner occupied or non-owner?  Credit score, down payment all play into the rate AND costs of a loan. It may very will be overpriced but no way to know without the details. 

    Yes it is a conventional loan, owner-occupied, high credit score (near 800), 5% down, $220,000 loan! Thanks for all of the help. 

     I agree with others, depends on the firm.   However, a general comment is that lenders are thin on margin right now to entice customers into the market.   If they are charging a higher fee, they may either be giving you some back in rate or they are just fat with overhead and have to charge it.   In the Charlotte market, I see most fees ranging from $1,800 to $3,000 when I compare our costs.   

    However, I have complete control over my charged fees in most of my business and I can charge the cost on the front (fees) or the back (rate) so it is a balancing act to find the right fit to the customer and business.   My recommendation is look at the total offer and work with people you trust over time.

    1Reply
  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Michael Hutchinson:
    Quote from @Jonathan Riordan:
    Quote from @Jay Hurst:
    Quote from @Jonathan Riordan:

    I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

    Thanks in advance! 

     @Jonathan Riordan    The cost is just like the rate in that it depends on the details.  is this for a conventional loan?  Owner occupied or non-owner?  Credit score, down payment all play into the rate AND costs of a loan. It may very will be overpriced but no way to know without the details. 

    Yes it is a conventional loan, owner-occupied, high credit score (near 800), 5% down, $220,000 loan! Thanks for all of the help. 

     I agree with others, depends on the firm.   However, a general comment is that lenders are thin on margin right now to entice customers into the market.   If they are charging a higher fee, they may either be giving you some back in rate or they are just fat with overhead and have to charge it.   In the Charlotte market, I see most fees ranging from $1,800 to $3,000 when I compare our costs.   

    However, I have complete control over my charged fees in most of my business and I can charge the cost on the front (fees) or the back (rate) so it is a balancing act to find the right fit to the customer and business.   My recommendation is look at the total offer and work with people you trust over time.


     That is a good point. I will likely just discuss with him and see if there is an area where I am making up for the higher up front cost. Thank you for the input. 

    That is where I am having a hard time, I see people recommending shopping multiple different lenders, but also know there is a lot of benefit in using the same lender for every deal if possible and forming that relationship. Do you recommend searching for the best rate? or using the same loan officer if it is someone that you trust/form a relationship with regardless of their rates and fees? 

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  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y
    Quote from @Wendy S.:

    @Jonathan Riordan.

    I'm in GA,I would shop. For an owner occupied conventional, unless that $6K is for rate buy-down, I would expect better terms. My Lender has a $1,295 origination fee, regardless of loan size.

    thanks for the info! 
    0Reply
  • Michael Hutchinson
    Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Jonathan Riordan:
    Quote from @Michael Hutchinson:
    Quote from @Jonathan Riordan:
    Quote from @Jay Hurst:
    Quote from @Jonathan Riordan:

    I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

    Thanks in advance! 

     @Jonathan Riordan    The cost is just like the rate in that it depends on the details.  is this for a conventional loan?  Owner occupied or non-owner?  Credit score, down payment all play into the rate AND costs of a loan. It may very will be overpriced but no way to know without the details. 

    Yes it is a conventional loan, owner-occupied, high credit score (near 800), 5% down, $220,000 loan! Thanks for all of the help. 

     I agree with others, depends on the firm.   However, a general comment is that lenders are thin on margin right now to entice customers into the market.   If they are charging a higher fee, they may either be giving you some back in rate or they are just fat with overhead and have to charge it.   In the Charlotte market, I see most fees ranging from $1,800 to $3,000 when I compare our costs.   

    However, I have complete control over my charged fees in most of my business and I can charge the cost on the front (fees) or the back (rate) so it is a balancing act to find the right fit to the customer and business.   My recommendation is look at the total offer and work with people you trust over time.


     That is a good point. I will likely just discuss with him and see if there is an area where I am making up for the higher up front cost. Thank you for the input. 

    That is where I am having a hard time, I see people recommending shopping multiple different lenders, but also know there is a lot of benefit in using the same lender for every deal if possible and forming that relationship. Do you recommend searching for the best rate? or using the same loan officer if it is someone that you trust/form a relationship with regardless of their rates and fees? 

     Happy to help.   About 1/2 my business shops me and that is fine.   We are very well priced in my market usually hold up.  However, it depends on loan product.  As an example, it is hard to beat out a large depository who can service the business for a big Jumbo ... those businesses will do it at cost or a loss to maintain the other parts of the financial relationships.   Builder is similar where the builder is buying down the cost so that they can have preferred lenders that they feel comfortable can close every time.   

    Personally, I steal a lot from large online lenders because many in the industry value relationships because the client/realtor experience can be hit or miss with those huge shops.

    I would go back to the lender and also get at least one other quote in parallel.   

    1Reply
  • Jonathan Riordan
    OP
    New to Real Estate · Atlanta, GA · Member since 2022 · 18 posts · 9 votes
    3y

    @Michael Hutchinson Definitely. I think I also value relationships over shopping for the best prices. I have already formed a relationship with the current loan officer I am using and would almost feel bad not using him at this point because he has been very helpful throughout the process. There is a lot to be said about finding someone you trust as opposed to just shopping for best rates. 

    thanks again for all of the advice. 

    1Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Jonathan Riordan:
    Quote from @Jay Hurst:
    Quote from @Jonathan Riordan:

    I am under contract on a house and my lender sent over the closing cost estimations. It looks like they are charging an origination fee of 2.5%. This seems high compared to what I have seen in the past. What have y'all seen in regards to origination fees? 

    Thanks in advance! 

     @Jonathan Riordan    The cost is just like the rate in that it depends on the details.  is this for a conventional loan?  Owner occupied or non-owner?  Credit score, down payment all play into the rate AND costs of a loan. It may very will be overpriced but no way to know without the details. 

    Yes it is a conventional loan, owner-occupied, high credit score (near 800), 5% down, $220,000 loan! Thanks for all of the help. 

     @Jonathan Riordan    In that case, there is no reason you should HAVE to pay 2.5% in origination. You CAN pay that if you are buying down your rate significantly but again that should be your choice.  

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  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 734 votes
    3y

    It is average. 1-3 is normal. The more you know you know. 

    0Reply
  • Michael Hutchinson
    Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Nate Marshall:

    It is average. 1-3 is normal. The more you know you know. 


     True IMO.  However, the cost to process a loan is really almost $3k at most firms.   Now, that isn't always shown to the customer and people will say "in house processing" or underwriting or whatever.   Those people still get paid, facilities, cost, etc.   That cost is passed through in the rate, but also in secondary on the resale of the loan.   Good news is that most lenders have compressed margins in some fashion ... if you are dealing with a reputable lender.  

    I hate to say this lender is over charging because I don't know his/her program, but getting a second quote is certainly a good idea here IMO because the fee on that product appears quite high.

    1Reply
  • Zack KarpPro Member
    Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
    3y

    @Jonathan Riordan that's wayyyy too high.  It should be more like $1200 ish.  You're getting hosed.  Run.

    And if they are trying to dangle a low rate in exchange for that cost, that's a terrible strategy heading into what "experts" are all saying that rates will come down in the future.  If that happens, you'll have an opportunity to refinance to a lower rate.  And any points/cost you are paying now you will just be pissing away.

    Best of luck!

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  • Doug Smith
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    3y

    Brokers are paid in 2 ways: Borrower Paid and Lender Paid. Most brokers build in 2.75% to the pricing (we build in less). That means that if this broker is building in 2.50% into the pricing, then if they go lender paid, the rate is higher, but you have no points. For borrower paid, they got off the base rate, called a "Par" rate, and then charge you points for their fee. When we go borrower paid, we might also bump the rate a bit to provide a lender credit, which offsets that a bit or completely. Does the estimate also provide a lender credit to offset it somewhere? If they are making 2.5%, that's pretty reasonable. They might not be raising your rate as high as they normally would if less points are being charges. I hope that helps. 

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