You've gotten to the shocking point of seeing how much money you need to bring to closing on your VA loan. Somehow your lender either didn't talk much about it before now or not at all. In either case, it hits you like a ton of bricks. Origination fee? What is an Origination Fee?
This scenario happens far too often. This is especially the case with VA loans since VA makes it a point to say that VA lenders CAN charge an origination fee. But let's not blame it on VA. When it comes down to it, it's up to the lenders and brokers to charge it or not. In either case, I'll explain what is an origination fee, what to watch out for and how you can avoid it without being penalized.
What is an Origination Fee?
This is quite simply a charge set by the lender or broker for their services to provide you the loan. It begins with the initial application taken by the Loan Officer and ends when you sign the paperwork at closing. On a VA loan, this charge can be up to 1% of the loan amount. In fact, most brokers automatically charge the full amount. Some banks and lenders do not charge one at all. For instance, when you're connected with a lender through this website, you WILL NOT have to pay for an origination fee at all.
Is Origination Fee Same as Discount Points?
No. Discount points have a completely different purpose than the origination fee. However, you will need to be quite aware of how much the lender is charging and how it affects your loan. Often times brokers (unlawfully) use discount points as a way to generate more income.
The origination fee is meant to cover expenses to process the loan. It should have no impact on your loan rate or payment. On the other hand, the purpose of the discount point is to secure a lower rate in the form of a one time prepayment on the interest. This can have a tremendous benefit on your loan.
As an example, you pay 1% discount on a $300,000 VA loan or $3,000. The reduction you receive on the rate is 0.5%. This reduces your payment by nearly $100. Over 30 years, that lowers your overall payments by $36,000. This of course would be a benefit to you should you stay in the house over 30 month. Yet a 1% origination fee will serve nothing more than to deplete your bank account.
How can I keep from Paying an Origination Fee?
The short answer is to shop around. There are some lenders that don't charge origination fees. Here are some of the tips to get a VA loan with No Origination Fee:
Shop Different Lenders
This seems like a common sense answer but unfortunately veterans still fall victim to high priced brokers simply because they don't know better. Take some time to look around. In fact, complete a form on VA Loan Lending and rest assured, you won't be disappointed.
Watch out for Realtor Referrals
Some realtors have good lenders they refer business to. The problem generally relates to realtors that only refer to one lender or more specifically, one broker.
This brings up important questions you should always ask, such as:
- Whose interest is being represented with a referral to a high priced broker?
- Why would a realtor want to refer their customers to someone that over-charges their customers?
- Could it be a case of a short term monetary gain versus a long term goal of gaining valuable customer retention and referrals?
Closing Cost Assistance
This is not only a great way to keep from paying origination fees, but all of your costs. There are several ways to get assistance. Find out the many ways to get VA closing cost assistance here.
SEE ALSO: VA LOAN NO CLOSING COSTS