Commitment Fee
A fee paid to a lender to secure a loan commitment, usually expressed as a percentage of the committed loan amount.
Definition
A commitment fee compensates the lender for reserving capital and underwriting a loan the borrower may or may not close. It is commonly quoted in basis points or as a percent of the commitment (for example, 50–100 bps) and may be due at application, commitment issuance, or closing. Some of the fee may be credited toward closing costs if the loan funds; if the borrower walks after commitment, the fee is often non-refundable. On small bay acquisitions, treat the commitment fee as part of cash to close alongside appraisal, legal, and other origination costs.
Example
A bank issues a commitment for a $1,250,000 loan with a 50 bps commitment fee. Fee = 0.005 × $1,250,000 = $6,250 due when the commitment is accepted.
See Also
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