How to Avoid Loan Origination Fees

Loan origination fees are what mortgage bankers or brokers will charge you as a fee for completing paperwork and disclosures on your mortgage or mortgage refinancing application. Fees for this can vary from 1 percent to 3 percent of the price of your home, depending on the lender you are using. Here is a complete how-to guide on reducing and avoiding loan origination fees.

Things You'll Need

• Good-faith estimates from several lenders

Instructions

Before You Shop

1. Make sure you are credit qualified. Go online and get your credit report and FICO scores prior to for shopping loans or loan officers. Verify that your three FICO scores are above 620 and that you do not have derogatory items on your credit report prior to applying for a loan.

2. Shop around. Don't go with the first lender who tells you they will provide you with a loan approval. Compare rates and terms of at least four mortgage bankers or mortgage brokers. This can be done easily online with the resources listed below.

3. Don't let them pull your credit. The first thing that a loan officer or mortgage broker will want to do is make sure you are credit-qualified. There is no need to have them pull your credit history to provide you with a good faith estimate outlining their fees based on your purchase price or refinancing price.

4. Compare all good-faith estimates side-by-side. Look at each one, highlight the differences in fees. Where one lender might look less expensive at first glance, really look and see where you are saving the most money in the short term and in the long term.

Negotiations

1. Tell your loan officers, from the beginning, that you are comparing them against competitors. Good loan officers and mortgage brokers will use that information to create a competitive scenario for your mortgage or home refinance.

2. Negotiate with your good-faith estimates. Once you have compared apples to apples on the good-faith estimates provided, you will find that the most common discrepancies are in the variations of the loan origination fees. Talk to your loan officer about a broker credit or a reduction in that fee, and see who is willing to negotiate.

3. Ask for a flat fee loan. Talk to the mortgage broker or loan officer about offering to pay them a flat fee to process your loan, as opposed to a percentage of the origination fee. If you are credit-qualified, there is less documentation involved, and good loan officers will negotiate for a flat loan processing fee, which can save you a lot of money.

4. Check the title company out. Get a copy of title company fees before moving forward with a purchase or refinancing. The title company fees should be clearly listed on the good-faith estimates provided by your loan officer or mortgage broker. Shopping for title companies that are less expensive can make the loan officer or mortgage broker reduce or eliminate your loan origination fee altogether if you can save them some money on the title company used.

5. Remember to use the power of referrals. Talk to your loan officer or mortgage broker about referring them business in exchange for eliminating your loan origination fee. You will find that many loan officers and brokers are willing to do this if you will provide them at least five credit qualified buyers. Negotiate away your loan origination fee with this simple, yet effective, strategy.

Tips & Warnings

• Keep a stack of your loan officer's cards to pass out on their behalf. They are much more willing to negotiate with someone who sends them good business.

• Don't be pressured into fast closings. Take time to do research, but try to keep that time to 30 days or less.

Resources

• Check your credit
• Compare lenders side-by-side