What is a loan origination fee?

A loan origination fee is a charge imposed by the lender for the services involved in processing a loan application. This fee typically covers the lender's costs for evaluating the borrower's creditworthiness, processing the application, underwriting the loan, and preparing the necessary documentation. It is usually expressed as a percentage of the total loan amount and can vary depending on the lender's policies and the complexity of the loan application.

This fee is crucial because it compensates the lender for the work undertaken to facilitate the loan, which ultimately leads to the borrower receiving the funding needed for purchasing property or refinancing an existing mortgage. Understanding this fee is important for borrowers as it impacts the overall cost of obtaining a loan and should be factored in when comparing different loan offers.