What does a loan origination fee typically represent?

A loan origination fee typically represents a percentage of the loan amount. This fee is charged by lenders for the processing of a loan application and is intended to compensate the lender for taking the risk associated with lending. The percentage can vary based on the lender and the specifics of the loan but generally falls within a certain range, such as one percent to three percent of the total loan amount.

It is important to note that the origination fee is typically applied only to the costs associated with the loan itself and is not a flat fee applicable to all loans, which makes the option suggesting a flat fee inaccurate. The fee is not paid to the seller, which distinguishes it from other costs that may be involved in a real estate transaction, nor is it a government-collected fee, as origination fees are generally set by private lenders.