When you apply for a construction loan or pretty much any private loan, sometimes your going to be asked to pay a commitment fee up front non-refundable. In addition you can be asked to pay an inspection fee, an appraisal, a deposit on legal fees and when the deal closes a Lender Fee and Broker Fee off the net advance. I generally look for a non refundable deposit for legal fees in case the borrower changes their mind then the lawyers expenses are covered. Some lenders want a deposit on lender fee. We call that a Commitment Fee.
- If your asked to pay a non-refundable commitment fee up front, be very careful about reading all the funding conditions. There are fraudsters out there who have no money but pretend they have it to get a non-refundable commitment fee from a borrower.
- If the fee is paid up front and you don’t satisfy all the funding conditions of the contract, the fee can be held back as liquid damages.
- Most Lenders want to see a commitment fee as a sign from the borrower that they are sincere about borrowing the money and it also tells the Lender that the borrower is confident they can satisfy all the funding conditions.
- If you can’t satisfy every single funding condition by the deadline, they can walk away from financing your loan and take your money with them. So be very careful and have your lawyer review the contract first before agreeing to pay a commitment fee.
- If you know you can’t satisfy a funding condition by the deadline, then get an extension in writing from the Lender for that condition. Never count on a verbal agreement.
- My advice is don’t agree to a commitment fee unless its being applied to the Lender Fee at closing and you have it in writing.
- Don’t pay the commitment fee unless you know unequivocally that the Lender is legitimate and will fund your deal.
- If you don’t have the money for the commitment fee, tell your broker. Let your broker take care of this for you. Full disclosure is always the best policy with your mortgage broker.