Once the borrower submits the mortgage application to the lender the mortgage loan processing begins. Again, you will have to sign mortgage application forms to allow the lender and or broker acting on your behalf to retrieve a credit report from the credit reporting agency like Equifax, TRW and other similar credit reporting institution to release information about you, the borrower.
The underwriter of the loan will approve, suspend or decline it. If the loan is approved, a set of conditions will have to be met before the funding department approves it. If the loan request is suspended, the underwriter will require more information from the borrower in order to continue the processing. If it is declined, the borrower will have to seek out another underwriter to obtain funding or apply to alternative lending programs.
Mortgage loans are originated by specialists in the lending industry. They could be completed by loan officers at a bank or mortgage specialists. These persons act like sales people who try to persuade you to accept their services to get funds. They act in their capacity either for mortgage brokers, large retail banks or large institutions that generate thousands of loans each year. These loan originators can be quite helpful in processing the loan as they get paid when it is successfully completed.
Once this loan is successfully completed the loan originators get paid a fee. The cost of getting these funds is called a loan origination fee. This fee is shared between the mortgage brokers and the loan originators or in the case of a loan officer, receives a bonus or commission according the terms of their employment contract with the bank
These fees are broken down according to a mortgage point system. It is expressed as a mortgage point to the loan amount. For example: If the amount is $100,000 for instance, the fee will be one point or $1,000. The bank or lending institution is really charging you one mortgage point on the amount in this case.
This loan origination fee is a negotiable fee. If the mortgage is a straight forward one the fee should be low. Sometimes the lender or the bank may not even charge origination fees. It all depends on the kinds of mortgage and the policy of the bank and the terms and conditions of the agreement. In cases like this, the fees may be imbedded in the ongoing cost of the mortgage. Instead of taking the fees upfront they take at the back end. But, you may be charged a higher interest rate for that privilege. Nothing is free.
NOTE: To learn how much origination fee you are paying you must look at the Good Faith Estimate and the HUD1 form. However most bank and lending institutions will charge between 1 to 2 percent of the loan amount as the origination fee, but his can vary.