What is an origination fee in the context of a home loan?

An origination fee refers to the fee paid to a lender for processing a new loan application. This fee compensates the lender for the costs associated with evaluating and approving the loan, which can include underwriting, processing, and other administrative expenses related to setting up the loan.

When a borrower applies for a mortgage, the lender incurs various costs to ensure that the loan is suitable and that the borrower meets the necessary qualifications. The origination fee is typically expressed as a percentage of the total loan amount, making it an integral part of the borrowing process. This fee is distinct from other fees such as credit report evaluations or late payment penalties, as it is specifically tied to the initiation of the loan itself.