Watch Out for Costly Loan Origination Fees on FHA Mortgages

Just a heads up. On January 1, the U.S. Department of Housing and Urban Development (HUD) removed the 1% loan origination fee cap on FHA mortgages.

This goes hand-in-hand with changes made to the Real Estate Settlement Procedures Act (RESPA), which now requires that all origination-related fees be consolidated in one box on the new Good Faith Estimate form.

The loan origination fee cap was removed because HUD assumed the consolidated charges would exceed one percent of the loan amount.

Though the max fee has been eliminated, the FHA “expects that lenders will continue to charge fair and reasonable fees for all origination services…”

Additionally, they will monitor the situation to ensure FHA borrowers aren’t overcharged and likely impose a new origination cap once they’ve had time to assess the situation.

A loan origination fee is typically paid to the loan officer or mortgage broker in exchange for funding your loan, and can certainly vary in cost.

To give you a quick example, a 1% loan origination fee on a $200,000 loan would be $2,000.

Sadly, I’ve already seen some mortgage companies boasting about the rule change, which seems nothing short of inappropriate.

(photo: thetruthabout)