How to calculate a 1-point loan origination fee on a 90% loan for a home valued at $80,000

Understanding the numbers behind a loan is like peeking behind the curtain at a magician’s trick. The more you know, the less surprised you’ll be when fees show up at closing. If you’re navigating the kind of mortgage math that pops up in CE Shop materials, you’ll recognize this scenario: a buyer getting a 90% loan on a home appraised at $80,000, with a one-point origination fee. Let’s walk through it clearly, step by step, and connect the math to real-world impact.

What is a loan origination fee, really?

• Put simply, the loan origination fee is the charge lenders assess for evaluating and preparing your loan. It’s a one-time cost paid at closing, not a recurring payment like interest.

• One point on a loan is 1% of the loan amount. So, when you hear “one point,” think 1% of the amount you’re borrowing, not of the home’s purchase price.

The math behind this example — break it down in plain language

Let’s use the numbers you were given, and keep it practical.

1. Determine the loan amount

• The home is appraised at $80,000.

• The buyer is borrowing 90% of that value.

• Multiply the appraised value by the loan-to-value (LTV) ratio: 80,000 × 0.90 = 72,000.

• So, the loan amount is $72,000.

2. Apply the origination fee

• The fee is one point, which equals 1% of the loan amount.

• Calculate 1% of $72,000: 72,000 × 0.01 = 720.

• Therefore, the origination fee is $720.

And there you have it: the correct total for the origination fee in this scenario is $720. Simple arithmetic, but it matters a lot when you’re budgeting for closing costs.

Why this fee matters in real life

• Cash-to-close: Origination fees add to the total cash you’ll need to bring to closing, along with appraisal fees, title fees, and prepaid items (like property taxes and homeowners insurance).

• APR vs. rate: Some lenders roll origination fees into the annual percentage rate (APR), which can affect your long-term cost of borrowing. Others itemize it as a separate fee. The way it’s presented can influence which loan looks cheaper on paper—and which one actually saves you money over time.

• Negotiability: Origination fees aren’t a fixed, unchangeable price. In many markets, you can negotiate the amount or choose to pay points to buy down the rate. It’s a little strategic chess, not a fixed rule.

A quick note on “points” and related terms

• Points can be paid to lower your interest rate. The one-point origination fee in our example is a fee charged for processing the loan, not a point paid to reduce the rate. Sometimes borrowers encounter both kinds of points in a quote, so it’s worth asking: “Is this a processing fee, a discount point, or both?”

• The distinction matters because paying points to lower the rate can reduce monthly payments over the life of the loan, but it also means more cash upfront. The right choice depends on how long you plan to stay in the home and your cash-on-hand today.

Putting the numbers into a real-life lens

• Imagine you’re budgeting for closing costs. If the purchase price were higher, or the down payment lower, the loan amount could swing a lot. A larger loan means a bigger one-point fee. Conversely, if you get a lower LTV (a bigger down payment), the loan amount shrinks, and so does the origination fee.

• It’s not just about the fee itself. The size of the loan affects other costs, like monthly payments and interest charges over time. The same 1% fee on a $200,000 loan is $2,000—gone in a heartbeat, but it’s a real chunk of cash at closing.

Common pitfalls to watch for

• Confusing home value with loan amount: The key is using the loan amount (the percentage of the home’s value you’re borrowing) for the fee, not the full purchase price.

• Forgetting about other closing costs: Origination fees are just one piece of the puzzle. There are also title, appraisal, and recording fees, among others.

• Misinterpreting “points”: Not every point is a fee to the lender; some can be paid to lower the rate, which changes the economics over time.

• Not checking the loan estimate carefully: The loan estimate and closing disclosure are there to spell out all charges. Read them side by side to see what’s baked into the rate and what’s an added fee.

A tiny checklist you can carry forward

• Confirm the loan-to-value (LTV): 90% in this example.

• Calculate the loan amount: Appraised value × LTV = loan amount.

• Identify the fee type: Is it an origination fee, a discount point, or another closing cost?

• Apply the percentage correctly: One point equals 1% of the loan amount.

• Compare loan estimates: Look at both the monthly payment and the total cost of the loan over time, not just the upfront fees.

• Ask for clarity: If anything looks unclear, request a breakdown from the lender. Good questions save bad surprises.

A relatable analogy

Think of origination fees like the “setup” you pay a contractor for a home renovation. You’re not paying for the actual materials or the new cabinets; you’re paying for the labor, the planning, and the permit tango that gets the project moving. The faster you understand what’s being charged and why, the more confidently you can decide which package to take.

Where this fits in the broader mortgage landscape

• The CE Shop materials often walk through how lenders structure loans, what the closing process looks like, and how numbers interact. This math isn’t just about a single fee; it’s about understanding the life of a loan—how an upfront cost translates into monthly obligations, how long you’ll be in the loan, and how every choice (down payment, rate, points) changes the bottom line.

• You’ll also encounter topics like appraisal values, insurance requirements, and the role of the mortgage underwriter. All of these pieces connect. A higher appraisal value can improve the LTV, potentially lowering the rate or reducing some fees; a low appraisal can do the opposite. The math isn’t just dry numbers; it maps onto real decisions that affect homeownership.

A final takeaway to carry with you

• For this scenario, the math is clean: $72,000 loan amount, 1% origination fee, which equals $720. That’s the kind of precise calculation you’ll be able to reproduce in many real-world situations.

• But the bigger skill is in seeing how this fee sits among other costs and how choices along the way affect the total cost of borrowing. When you can connect the dots from the appraisal to the loan amount to the closing costs, you’re not just solving a problem—you’re shaping a financial plan for a home.

If you’re exploring real estate finance materials from foundational courses, you’ll find these kinds of examples sprinkled throughout. They aren’t mere trivia; they’re practical tools you’ll use again and again—whether you’re drafting a client’s budget, evaluating loan options, or helping someone decide when a certain down payment makes the most sense. The math is patient and precise; your understanding of it can make a home purchase smoother, more predictable, and less stressful for everyone involved.

Closing thought: Numbers with a human touch

Let me ask you this: when you can explain a somewhat intimidating figure like a loan origination fee in plain terms, do you feel a little more confident about the whole home-buying journey? If the answer is yes, you’re not alone. The more you practice these calculations, the more natural they’ll feel—and the more you’ll be able to help clients move forward with clarity and calm.

If you’d like, I can walk through another example with different values or break down how a discount point might influence monthly payments. Either way, the core idea stays the same: understand the loan amount, apply the percentage correctly, and keep the bigger picture in view as you weigh costs versus benefits.