Loan Origination Fee

There are a number of fees associated with loans, one of which is known as a loan origination fee. This loan is charged for “originating”, or creating, the loan. The lender uses this fee to cover the upfront costs of preparing a new loan. 

A loan origination fee is a percentage of the total loan amount that lenders charge when processing a new loan application. It pays for the lender’s time spent preparing the loan, including: 

• Preparing loan documents 
• Running credit checks 
• Verifying income

Depending on how your lender structures your loan fees, your loan origination fee may be subtracted from your total loan amount, or it may simply be added to your principal loan balance to be paid off over time. .

Loan origination fees are an essential part of the hard money loan process. In many cases, loan origination fees are higher with hard money loans than in traditional lending. This happens for a few reasons: 

• Increased risk: Hard money loans are inherently riskier transactions than traditional loans. Not only do they have much shorter terms, but they are secured by real estate, rather than financial responsibility. 
• Quicker timelines: Fees also increase due to the faster turnaround times of hard money loans. 

At Source Capital, our loan origination fees start at just 2% of the total loan amount and vary based on your loan size, terms, and other factors. 

When you apply for your hard money loan, your loan origination fee will be clearly stated on your loan estimate. Our expert lenders will take the time to ensure you understand the cost of this fee and all other fees associated with your loan. 

To calculate the cost of your loan origination fee, use this calculation: 

• Loan origination fee = Loan amount * Fee Percentage 

For example, a 2% loan origination fee on a $200,000 loan is calculated as follows: 

• Loan origination fee = $200,000 x 0.02
• In this example, the loan origination fee is $4,000.

Let’s look at a few real world examples of loan origination fees in hard money lending.

A real estate investor is seeking a hard money loan to purchase a mixed-use commercial property for a fix-and-flip. The loan is for $4 million and has a term length of 12 months. Because of the high value and short terms of her loan, it’s considered a high-risk scenario. She’s charged a loan origination fee of 4%. 

According to the above calculations, her loan origination fee is $160,000. Her lender adds this fee to her principal loan amount to be paid off over the course of her loan, making her new loan amount a total of $4,160,000. 

A homeowner is seeking a hard money loan to complete renovations on her property. She takes out a hard money loan for $300,000 using her home as collateral. The loan term is 24 months. Because she has a small loan with reasonably long terms, her loan origination fee is 2% to be paid upfront. 

According to the above calculation, her loan origination fee is $6,000. When she is funded, her lender subtracts the $6,000 fee from her funds, so she’s issued $294,0000.