What Is a Loan Origination Fee in Real Estate?

A loan origination fee is a charge from the lender for processing a new mortgage loan. It covers the administrative work of underwriting, verifying documents, and preparing the loan for closing— typically costing 0.5% to 1% of the total loan amount.

💰 How a Loan Origination Fee Works

When a borrower applies for a mortgage, the lender performs several services—credit checks, underwriting, and documentation review. The origination fee compensates the lender for these services. It’s listed on the Closing Disclosure (HUD-1) as part of the buyer’s total closing costs.

  • Typical cost: 0.5%–1% of the loan amount.
  • Who pays: Usually the buyer; occasionally negotiated with the seller.
  • Tax status: Not usually tax-deductible, but check with a CPA for your case.

🏡 Loan Origination Fees vs. Other Mortgage Costs

The origination fee is just one of several lender-related costs. It’s different from discount points, which reduce your interest rate, and from temporary buydowns, which lower payments for a limited time. All three appear together under “Loan Costs” on the closing statement.

📈 Why FSBO Sellers Should Understand Loan Origination Fees

Knowing how loan origination fees work helps FSBO sellers evaluate buyer financing strength. A pre-approval letter showing paid origination costs can signal serious intent and financial stability.

When listing with Brokerless, sellers can request proof of loan approval or origination documentation to ensure smooth closings and reduce surprises before settlement.

💡 Ready to list your property with confidence? Explore Flat Fee MLS Packages and appear on the MLS just like agent-listed homes.