Mortgage Myth Busters: FHA Origination Fees & Origination Charges - What does it all mean?

FHA Origination Fees & Origination Charges - What does it all mean?


I have heard many different explanations when it comes to FHA origination fees. In my opinion, there seems to be confusion and inconsistencies when it comes to FHA origination fees. Let's first define FHA origination fee or just origination fee.  In the HUD buying handbook, it is explained to be a fee charged for the processing of the loan application. The origination fee is a percentage of the loan amount, if charged. It's not a standard 1 percent. It could be any fraction of a percentage.  This fee can vary amongst lenders, especially depending on the interest rate. And even though it's defined as a fee for processing, it's used for profit or to cover a lender's profit margin, depending on your interest rate.

Another reason for more confusion is because of the new Good Faith Estimates that went into affect January 1st, 2011. You now have a word called Origination Charge. This is not the origination fee, but the total of all lender charges to include the origination fee.



origination charge

As you can see in the picture above, this is part of the new good faith estimate which shows the total as Origination charge. But it doesn't break down any of the other charges. So you don't know if it includes any part of an origination fee, processing fee, etc.



Origination fees and origination charge

What you see above is part of a form called the 'itemized fee worksheet'. Not all loan officers or lenders give this to the borrower. As you can see, this gives you a complete break down regarding the origination fee and all other lender charges, aka lender fees. If you add up the origination fee and the commitment fee, it matches what is on the line for the origination charge. If you never see this break down, the only other time will be at closing, when it's broke down on the HUD-1 settlement sheet.

Why can I see this to be critical at times?

In some cases, you might not know exactly what you are paying for until you get to settlement, aka escrow, which is another term used. Some lenders will just roll their lender charges into your origination fee. Why does this matter? You can't write off the lender charges, but you can write off a percentage of your origination fee. Check with your accountant.


What are some other key important facts regarding origination fees?


FHA Rumor : All FHA loans have origination fees.  False.  It all comes down to your rate, loan amount, and credit score.  

FHA Rumor : FHA gets part of the origination fee on all FHA loans. False. I actually had a borrower that was told this once by another loan officer.



So, what does HUD/FHA collect on all FHA loans? Just the Upfront Mortgage Insurance Premium (MIP) and the monthly mortgage insurance MMI.  The lender gets all other lender related closing costs. I hate saying this, but if a loan officer tells you that part of the origination fee goes to FHA, don't walk, run very quickly and far away. This is not my opinion, but a real cold hard fact.



Summary :

Don't let your lender/loan officer confuse you with definitions of certain fees. It's amazing on how some loan officers will define such fees, especially when explaining what an origination fee is. And as a borrower, if you aren't sure, just ask. And no matter what the answer, google the topic. Just double check. As I mentioned, I actually had a borrower that I closed a loan for who was first told by a loan officer that part of the origination fee went to HUD. It didn't sound right, so they searched this online.





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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comment balloon 11 commentsJeff Belonger • March 17 2011 10:47PM


Another Government Bureaucracy protecting us, God help us.


Posted by William J. Archambault, Jr. (The Real Estate Investment Institute ) almost 10 years ago


As always you have given us quite an education. It seems the fees and how they are disclosed is more and more complicated, and perhaps even deceptive. My opinion.


Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (eXp Realty of California, Inc.) almost 10 years ago

Jeff, people can thank their "helpful" congressmen for this muddling of matters.  For years the ONLY FEE the Lender could charge was the origination  fee.  They received a Yield Spread Premium from the Investor [a/k/a Service Release Premium], and disclosure of the figure was not required on the Good Faith, but did appear on the HUD-1.

Later, the Truth-In-Lending disclosure had an entry where an originating broker disclosed the range of a fee they may receive from the investor upon timely delivery of the file.  The YSP/SRP would generally be in a range from 0% to 2% of the mortgage amount.  I always disclosed this, and explained its use & purpose.  When the market permitted, our company would permit me to use part of this fee to offset lender charges, such as the Committment Fee/Underwriting Fee, and the Tax Service Fee.  The exact amount of that fee WAS SHOWN on our HUD-1 Settlement Statements.  Full Disclosure was our practice.  We were given a floor & ceiling for these charges.  Government intervention should have stopped there: competition would take care of the rest.

The HUD Eagle was on our wall, and we would not risk losing it for a few buck more commission.  The HUD Auditors coming into our shop was rare but always taken seriously.  Leaving without sanctions always reinforced management's approach to loan origination.  It is amazing what an honorable reputation is worth.  Honor & Integrity benefit the public far more than Federal Regulations.

Posted by Fred Cope, Looking For Homes With A Smile (Reliant Realty in Nashville, TN) almost 10 years ago

Jeff, Useful information to keep the differences straight.  It's pretty easy to get derailed with all the different terms out there.

Posted by Liz and Bill Spear, RE/MAX Elite Warren County OH (Cincinnati/Dayton) (RE/MAX Elite 513.520.5305 almost 10 years ago

Jeff your knowledge of FHA is 2nd to none. Nice work putting together this easy to understand explanation of the latest changes.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 10 years ago

Great explanation Jeff. Even when I think I know it, you present new information that makes us all better educated.  

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) almost 10 years ago

Good afternoon, Jeff. Excellent explanation. (And cool graphics, by the way!)

Posted by Bill Burchard, Broker, Realtor, Representing Buyers and Sellers (3B Realty: 951-347-3818, CA) almost 10 years ago


Just wanted to thank everyone for their comments and for the kind words...


FRED... yes, we can blame are congress people for jumping in with their opinions and making it happen, when they should stay our or search for those true professionals that are actually in the trenches... dealing with this kind of stuff daily... and to stay away other like-minded politicians.. thanks


Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 10 years ago

Jeff, Thanks for the post. I have suggested it for feature so that more people can read it.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) almost 10 years ago

Jeff, I agree with Bill you are second to none when it comes to the FHA process, thank you for educating us all. 

Posted by Lorinda Ward, Serving, Hampton Roads Virginia. Norfolk, Chesapeake, Va Beach (Keffer Realty) almost 10 years ago

Another great post of explanation. You are truly one of the best and has a heart of an educator in the industry.

Posted by Loreena and Michael Yeo, Real Estate Agents (3:16 team REALTY ~ Locally-owned Prosper TX Real Estate Co.) almost 10 years ago