What is an Origination Fee?

An origination fee is specifically a fee charged to borrowers by lenders to cover the administrative costs associated with processing a loan application. This fee is typically calculated as a percentage of the total loan amount and encompasses the various expenses incurred during underwriting, application, and approval processes.

By charging this fee, lenders are able to recoup some of the costs associated with evaluating a borrower's creditworthiness and preparing the necessary documentation to facilitate the loan. The origination fee is distinct from other charges that may be levied during the life of the loan, such as late fees or fees related to loan management. Understanding the nature of origination fees is essential for borrowers to accurately assess the total cost of acquiring a loan and to compare different lenders' offerings effectively.