Non-refundable Lender Fee

October 09, 2021

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Boston, MA, USA

In relation to the underwriting process, when do lenders ask for an upfront non-refundable fee and what size to they typically ask for? Furthermore, in a "borrower friendly" environment, does anyone have experience with lenders letting their legal counsel fees be contingent on and become a deal fee paid at close?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Great question. As a general rule you should rarely if ever have to provide a non-refundable deposit. Usually if a lender wants a non-refundable deposit, especially if that deposit is of any size, then I would encourage you to consider walking away Now, if you are doing an SBA 7A loan, then the lender almost always requires a deposit once you have accepted a term sheet. Since there is substantial underwriting on SBA loans, they want confidence you plan to move forward. However, that fee should be refundable if the lender does not approve the loan and if the deal falls apart. If you ultimately decide to go elsewhere after they approve you, then you may have to forfeit that fee. That is part of the risk if you commit to move forward with an SBA 7A lender. However, from any other lender you will want to be sure the fee is refundable outside of third party costs the lender incurs.

Lender's will incur some third party costs in underwriting. Background checks, verification of tax returns via tax transcripts, credit reports, etc. Most lenders will remove those costs before refunding a fee. I do not typically recommend ordering third party reports before you have a final approval and have committed to move forward with a lender unless you are under time constraints or are very confident the loan will get approved and you intend to move forward.

I hope this helps. If you have additional questions I encourage you to email me at redacted Good luck with your search.

Reply by a searcher
from University of Virginia in New York, NY, USA

I would never pay a lender an upfront, non-refundable fee. At some point you may be asked for a deposit but it is always refunded if deal does not close. Good Counsel with a focus on search funds will often allow you to defer fees or may even provide a discount if a deal falls apart. Often depends on you, the searcher. Usually you only need counsel to draft definite docs when a finish line is in sight for most transactions de-risking the cost for you and work for counsel.

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