Who Usually Pays the Loan Origination Fee on an FHA Loan?
When you apply for a loan backed by the Federal Housing Administration, you may have to pay an origination fee. You pay this fee to the lender rather than the FHA, and your are responsible for paying it rather than the seller of the property you are buying. However, in some circumstances, home sellers actually end up paying the fee.
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Origination Fee
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Loan origination fees are fees charged by lenders for processing loan applications. Some lenders include costs such as attorney fees and notary fees in the origination fee while other lenders list those costs separately and just charge a flat origination fee for every loan. Costs such as your down payment, homeowners insurance, mortgage premium insurance and property tax are not part of the origination fee. Whether you are buying or refinancing a home with an FHA-backed loan, you must pay this fee at closing.
Seller Concession
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Under the FHA underwriting guidelines for mortgages, you can ask the seller of the home you are buying to pay some money toward your closing costs. In total, the seller can pay an amount equal to 6 percent of the purchase price toward the buyer's closing costs. The FHA refers to this as the "seller's concession." You can not use the seller's concession to go towards your actual down payment and therefore many people use the concession funds to cover the origination fee. However, not all seller's agree to pay any money towards the closing costs, and generally the buyer pays the fees.
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Origination Fee Limits
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Lenders can charge origination fees for any kind of loans and not just FHA-backed mortgages. In the past, the FHA capped the origination fee on FHA-backed loans to 1 percent of the loan amount. However, as of 2011, the FHA no longer caps origination fees, which means lenders can charge fees in excess of 1 percent. However, the fee cap remains in place for two types of loans: 203k loans and home equity conversion mortgages. The former are loans used to refurbish homes in need of repair and the latter are a type of reverse mortgage.
Considerations
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Some sellers balk at the idea of paying the origination fee on behalf of the buyer. However, the seller does not actually have to pay this fee out of pocket. Some people take this fee into account when negotiating the sale price and agree to pay slightly more for a home on the basis that a seller will pay toward the closing costs. The title agent who oversees the mortgage closing takes the purchase funds from the buyer and then applies some of those funds toward the settlement costs on behalf of the seller without the seller truly taking possession of the money.
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