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.
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.
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.
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