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Commitment fees: They’re Part of the Business

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Commitment fees: They’re Part of the Business

It’s a sensitive subject: Most borrowers don’t want to pay commitment fees prior to getting the loan. The reality is that commitment fees are part of the business, especially when borrowers become last-resort borrowers, or otherwise need to close extremely quickly.

To be sure, no one ever looks forward to paying higher interest rates, but the reasoning is that such borrowers may need a quick turnaround, a quick closing, and to accomplish that, there’s a price to be paid. There is a lot of work involved between the time a loan commitment is signed to closing—appraisals, due diligence, etc.—and unfortunately (and for obvious reasons) lenders can’t incur the cost. The manpower that it takes to close such time-constrained loans is hefty.

The bottom line is that the lender has to know that the borrower has represented everything accurately in order for a deal to work seamlessly. There is a substantial amount of upfront work that a lender has to accomplish to get the job done. Hence, commitment fees.

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