When can a lender collect an origination fee?

The correct answer highlights that a lender can collect an origination fee once the loan is closed. The origination fee is typically viewed as compensation for processing the loan application and is charged at the time the loan closes. This timing ensures that the lender is entitled to receive payment for the work done in originating the loan and that the borrower has agreed to the terms of the loan at closing.

Collecting this fee at closing helps to protect both the lender and the borrower. It ensures that borrowers are fully aware of all fees and charges associated with the loan before they finalize their commitment, thus promoting transparency in the mortgage process. Additionally, it minimizes the risk of collecting fees prematurely, in case the loan does not move forward.

Conversely, collecting fees at any other time—before the application is submitted or even upon receipt of the Loan Estimate—could lead to potential issues with borrower trust and regulatory compliance, especially if no loan is ultimately issued. After loan approval also does not align with standard practice, as the process is not complete until closing. Thus, collecting the origination fee at the point of closing aligns with regulatory expectations and ensures a fair transaction for both the lender and the borrower.