Texas Real Estate Sales Agent ExamFinancingMedium
A real estate agent is explaining closing costs to a first-time homebuyer. The buyer asks about a fee paid to the lender, typically 0.5% to 1.5% of the loan amount, for the administrative costs of processing the loan application. What is this fee called?
- AUnderwriting fee
- BPrepaid interest
- CEscrow fee
- DLoan origination fee
Show answer & explanationAnswer & explanation
Correct answer: D. Loan origination fee
A loan origination fee is a charge by the lender for the administrative work involved in processing a mortgage loan. It typically ranges from 0.5% to 1.5% of the loan amount.
Why the other options are wrong
- A. An underwriting fee is part of the lender's costs but is usually encompassed within the origination fee or a separate smaller charge, not the primary administrative cost.
- B. Prepaid interest is interest paid at closing to cover the period until the first full monthly payment, not an administrative processing fee.
- C. An escrow fee is paid to the escrow agent for managing the closing process, not directly to the lender for loan processing.
Loan Origination Fee
A fee charged by the lender to cover the administrative costs of processing a mortgage loan. It is typically a percentage of the loan amount.
- Paid by borrower to lender
- Covers loan processing and administrative costs
- Usually 0.5% to 1.5% of the loan amount
Memory trick: Origination is the Official Office charge.