In theory, getting a loan should be as simple as filling out an online application—but that’s not always the case. There are a number of factors to consider and information you’ll need to understand before deciding on a loan.
First off, you’ll want to know your credit score and find out what type of interest rates and terms you can qualify for. You’ll need to figure out how much money you can afford to borrow. And if you’re taking out a mortgage, there are also additional home-buying costs to consider—like appraisals, inspections, and closing costs.
One thing you should always look out for—regardless of the type of loan you are applying for—is lender origination fees.
While many lenders charge origination fees, what they call those fees and the amount they charge can vary quite a bit. Before you settle on a lender, here are some things you need to know about origination fees, so you can make the best borrowing decision for your financial situation.
What are Origination Fees?
An origination fee is a fee the lender charges for a new loan. It’s a one-time fee charged at the time the loan closes. The fee covers the costs the lender incurs for processing and closing your loan.
How much a lender charges and what the fee is called varies based on the type of loan and the lender. A traditional origination fee is usually calculated as a percentage of the loan amount—and that percentage depends on the type of loan.
There are a variety of other origination fees that lenders may charge which are a flat amount rather than a percentage of the loan amount. Other fees that lenders may charge to originate a loan could be called processing, underwriting, administration, or document preparation fees.
Mortgage Loan Origination Fees
When you apply for a mortgage loan, there are a variety of costs associated with closing the deal on your new home. These will include lender fees and other third party fees. Lender origination fees are typically paid by the borrower as part of these closing costs and have to be paid, along with closing costs and down payment, at the time the loan closes.
Mortgage lenders are required to give you a Loan Estimate within three days of your application so you can compare loan costs, terms, and APRs with other lenders’ offers. You’ll typically be provided with a Loan Estimate form. On average, mortgage origination fees are about about 0.5% to 1% of the total loan amount —but with additional fees, your closing costs could be 2% to 5% of the total loan.
Personal Loan Origination Fees
When you take out a personal loan, the lender may charge an origination fee in one of two ways. Some lenders take the origination fee out of the distributed loan amount. That means if you were approved for a $10,000 personal loan with a 5% origination fee of $500, then you would receive $9,500.
Other lenders may charge an origination fee by adding the fee to the loan amount. This means that a 5% fee on a $10,000 would bring you to a $10,500 loan. If this is the case, your monthly payment will be a little bit higher. Be sure you find out which way your lender expects origination fees to be paid, so you can plan accordingly.
Origination fees for personal loans can range from 1% to 8% of the loan amount depending on your credit score and the length of the loan. The origination fee typically depends on the amount of the loan you’re requesting, the loan terms (repayment period and interest rate), your credit score and financial history, if you have a cosigner, and potentially what you’re using the personal loan for.
Some lenders, like SoFi, don’t charge origination fees on personal loans, so it can be worth shopping around. If the lender lets you pre-qualify without a hard credit check, then you can compare the loan estimates, including the APR and any fees.
Another thing to consider when comparing your personal loan options is your alternatives to a personal loan. For example, if you’re going to use a personal loan to pay for medical expenses or pay off credit card debt, then consider comparing costs. What would it cost you (in interest) to pay your debt down on the credit card instead of using a personal loan? What would a personal loan with an origination fee cost you? You’ll probably want to do your due diligence just to ensure you’re getting the right deal for you.
Avoiding Origination Fees
As with many things, origination fees may be negotiable. The more you understand about the type of loan you want and the terms of the loan, the better prepared you will be to have this conversation with your lender.
While you are researching your loan options, be sure to compare what you’ll be paying overall—including the terms of the loan, the interest rate, and any fees—to figure out which lender matches your needs.
One way to effectively compare and contrast different loan options is to take a look at each loan’s APR. This is the loan’s annual percentage rate and it provides a more comprehensive look at the cost over the life of the loan. It factors in the fees and costs associated with the loan, in addition to the loan’s interest rate. The Truth in Lending Act requires that all lenders disclose an APR for all types of loans, including personal loans and mortgages.
It’s important to evaluate all of your options—including the mortgages and personal loans that SoFi offers. You can start your application for both types of loans online, and you’ll be able to find out what rate you could qualify for in just minutes.
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SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice