An origination fee is the charge a lender collects for processing, underwriting, and funding a new loan. It is typically expressed as a percentage of the total loan amount, commonly ranging from around half a percent to two or three percent depending on the loan type, lender, and complexity of the deal, and is usually paid at closing.
The fee compensates the lender for the work involved in evaluating the borrower and the property, preparing loan documents, and coordinating the closing process. On commercial real estate transactions, origination fees can be negotiated as part of the overall loan terms, particularly on larger loans where lenders compete for the business. Borrowers evaluating financing options should factor the origination fee into the total cost of capital alongside the interest rate, since a loan with a lower rate but a higher origination fee is not automatically cheaper. Sponsors typically account for origination fees within a deal's projected closing costs when underwriting a transaction.
Further reading: Real Estate Investment Strategies for Accredited Investors in 2026
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