If you’re looking to purchase a home or are considering refinancing, you’ll want to be aware of the different fees that come up. One of the most common are loan origination fees. But what are they? In simple terms, when a borrower takes out a loan, the lender will charge a percentage to cover the cost of processing and underwriting your application.
Now that you know what these fees are, you may be wondering how much they will cost you — and if you can avoid them altogether.
Loan origination fees vary by lender and usually depend on how much you’re borrowing. On average, a loan origination fee is about one percent of your mortgage. So, if you have a $100,000 mortgage, your loan origination fee will likely be around $1,000. Saving up for fees and closing costs well in advance of becoming a homebuyer should be a part of your overall budget so you’re covered when they’re finally due.
To get started, you can ask your lender to give an estimate of how much your fees will be by getting prequalified for a mortgage. This will give you an idea of what’s to come and can give you a leg up during negotiations with other lenders while you shop for loans.
A loan origination fee may be waived or reduced, and here are a few ways to do it:
The IRS classifies loan origination fees as points. Points are considered prepaid interest and can be used for tax deductions. This is true even if the seller agreed to pay them for you. Always make sure to double check your local laws and consult with your tax professional to confirm that these fees are deductible in your unique case.
A simple rule of thumb to keep in mind is that loan origination fees are closing costs, but closing costs aren't exclusive to loan origination fees. You will pay your loan origination fees at closing, but they won’t be the only fees included in your closing costs: others include private mortgage insurance, appraisal costs, and property taxes (just to name a few).
Overall, loan origination fees are a common cost associated with closing a home sale or a refinance. These fees are usually about one percent of your overall loan, and you may be able to waive them depending on your lender. As long as you plan ahead and incorporate loan origination fees into your overall homebuying budget, you’ll be well on your way to buying your new home.
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A preapproval is based on a review of income and asset information you provide, your credit report and an automated underwriting system review. The issuance of a preapproval letter is not a loan commitment or a guarantee for loan approval. We may offer a loan commitment after you submit an application and we perform a final underwriting review, including verification of any information provided, property valuation and, if applicable, investor approval, which may result in a change to the terms of your preapproval. Preapprovals are not available on all products and may expire after 90 days. Contact a Home Lending Advisor for details.
These articles are for educational purposes only and provide general mortgage information. Products, services, processes and lending criteria described in these articles may differ from those available through JPMorgan Chase Bank N.A. or any of its affiliates. The views expressed in this article do not reflect the official policy or position of (or endorsement by) JPMorgan Chase & Co. or its affiliates. Views and strategies described may not be appropriate for everyone and are not intended as specific advice/recommendation for any individual. Information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. You should carefully consider your needs and objectives before making any decisions and consult the appropriate professional(s). Outlooks and past performance are not guarantees of future results. For more information on available products and services, and to discuss your options, please contact a Chase Home Lending Advisor.