The "Origination Fee" of mortgages past has morphed into what is today called "Your Adjusted Origination Charge" and is not exactly the same thing as it was close to 1.5 years ago. The old term typically meant 1% of your loan amount that was charged to originate your mortgage, and there would then be other ancillary charges like processing fee, underwriting fee, or application fee. Fast forward to today's world and the new and improved "Adjusted Origination Charges" (AOC).
The AOC is now a single category on the good faith estimate, pages 1&2 box A, in which the expenses the lender charges you to procure your mortgage along with any points you have for the interest rate you chose will end up. Box 1 in the AOC section at the top of page 2 of your good faith estimate gives you a lump sum. So where does this number come from? Great question, let me shed some light on that for you. Before I begin though, let me suggest you read my previous article 3 Insider Tips NO Lender Wants You to Know for even more clarification on this topic. If you only have your good faith estimate and no fee sheet or costs breakdown, you need to get on the horn immediately to your loan officer and have him/her send you the fee sheet and walk you through it. The fee sheet will break down what makes up the AOC in detail. This is where you will be able to see what expenses your lender charges (lender fees) vs. another lender. In addition to being called lender fees, you may also hear the term junk fees. These items can vary greatly in amounts, so this ends up being one of two very important ways to effectively discern which lender is the best option. (The other way being the APR) Again, please do not just accept what you see in Box A on your good faith estimate, ask for the breakdown of this amount and use this information to your advantage.
The other item that makes up the AOC is any amount of points you have agreed to pay to secure your interest rate. A point is typically a percent of your loan amount and so any multiple of points you agree to pay to get the rate you desire will be included in this area. You will find this detailed in Box 2 in the AOC section at the top of page 2 of your good faith estimate. This should follow what is spelled out on the fee sheet you will be asking for as support for the good faith estimate.
The origination charge for your mortgage loan can easily become a large portion of your closing costs and that is why I recommend you request the detailed breakdown of this item. The fee sheet is the number one way to do that, so ask for this at the same time you receive your good faith estimate. Understanding your Adjusted Origination Charge is just one more way you can Manage your Mortgage.
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