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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  • Michael Hutchinson
    Lender · Fort Mill, SCinstal · Member since 2016 · 68 posts · 64 votes
    3y
    Quote from @Doug Smith:

    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. 

     100% right.  I will add information to that to complicate things.   If they are a correspondent, they get greater flexibility.   You can vary the fees and rate to get the front/back end payout without needing to disclose the changes as it is in the rate.      My Correspondent channel has more flexibility than my Broker channel.    The lending channel makes it hard to distinguish the deal quality.    Personally, I didn't know all of the differences in how deals are structured until I did multiple channels.  

    Key is to get a competitive quote IMO if you are unsure if you are getting a fair deal.   

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

    @Jonathan Riordan- –what interest rate are you getting with the 2.5 points ? fyi - if buying this SFR property as a primary residence ...with scores > 740 and at a 95% ltv ...your interest rate should be in the 5.75% - 6% range

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  • Tim Miller
    Rental Property Investor · Laurel, MD · Member since 2016 · 378 posts · 382 votes
    3y
    Quote from @Jonathan Riordan:
    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. 
    Conventional loan I wouldn't pay any origination fee. Try shopping around with other banks, Credit Unions or small local banks. We used a small local bank for our commercial loans on our rentals and didn't pay origination fees. FHA loan on our primary home and didn't pay origination fees.
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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ 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?


    Your company is not just charging a nominal admin fee and an underwriting fee. Points are included in the rate and you're getting lender paid compensation that's predetermined, but one way or the other, there are points involved. On conventional and some non-qm loan programs, lender paid is typical. On DSCR, with rates where they are, borrower paid is common.

    To @Jonathan Riordan, 2.5 isn't bad and as others have said, it depends on the loan amount for most brokers.

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