What is a loan origination fee?

A loan origination fee is a type of charge that lenders impose to cover the costs associated with processing a loan application. This fee is typically a percentage of the total loan amount and helps ensure that the lender has the necessary resources to evaluate the borrower's creditworthiness, underwrite the loan, and manage the overall loan application process. Loan origination fees are distinct from other costs involved in the mortgage process, such as monthly mortgage payments, appraisal fees, or commissions for real estate agents, which serve different purposes and are associated with various aspects of obtaining and managing a mortgage. Understanding this fee is crucial for borrowers as it directly impacts the overall cost of securing a mortgage.