What is a loan origination fee?

A loan origination fee is specifically a fee that lenders charge for processing a new loan application. This fee covers the administrative costs associated with evaluating and underwriting the loan, such as credit checks, processing paperwork, and other activities related to the initiation of the loan. This is a critical component of the lending process as it ensures that the lender has the resources necessary to thoroughly assess the borrower's ability to repay the loan.

This fee is typically a percentage of the total loan amount and is often required to be paid at the closing of the loan. By understanding the purpose of the loan origination fee, borrowers can have a clearer picture of the costs involved in obtaining financing for a property.