What is a "rate lock period"? How can you make sure your rate is low?

A rate lock or a rate commitment is a lender's promise to hold a certain interest rate and a certain number of points for you for a specified period of time while your application is processed. This prevents you from going through your whole application process and at the end of it finding out the interest rate has gone up.

In commercial lending, the rate lock is not automatic with the LOI, which must be executed within a specific time frame. The rate floats until loan docs are drawn.

A rate lock period can vary in length, and longer ones usually cost more. A lender will agree to "hold" your interest rate and points for a longer period, say 60 days, but in exchange the rate and maybe points are higher than with a shorter rate lock period, for example.

Finally, the interest rate a lender is willing to offer you depends on your overall credit, type or classification of property, the documentation type you are using when applying, yours and the properties income and ability to service the newly proposed debt.

FEES--The Truth Behind The Demand

Unlike residential lending (owner occupied 1-4 family units), advance and upfront fees are not out of the question and are legal and norm in conducting business. This means that the lender is going to require the borrower(s) to pay in advance for certain aspects of the loan process and that these fees will be credited towards the overall closing costs.

If any lender tells you that there are no upfront fees, it is sure sign that they are not someone who will take your loan seriously. And lenders who want exorbitant ($20,000 or more) upfront fees are in the business of earning fees and not funding your loan.

You must think about the fees being demanded are much like you being asked to pay for gasoline at the pump (in advance of pumping). You can't say to the station owner--"I will pay you if I like how your gas makes my car run."

We have taken a practical approach to the advance fee conundrum. We require a small fee of $695 at submission. Our policy is this: 1. If we believe that your loan will not be able to be approved, 100% of the fee is returned--Period. 2. If we can obtain a LOI or conditional approval and you reject the LOI or conditional approval, we keep $195 and return the balance. 3. If you loan does not close for any reason--none of the fee is refundable. 4. If you loan does close, the fee is credited towards your closing costs. Straight forward.

Of course you have the option to shop those fees and what you can expect for those fees. Most commercial lenders are reasonable in their advance fee schedules and have no problem letting you know how much of those fees are at risk if the transaction does not close (for any reason).

Now, hard money lenders and fees are a different story. Since most hard money lenders want to do "touch, see, feel" approach as part of their due diligence, you can expect the advance fees to include the cost to complete a physical inspection by the underwriter or their designatee. In this case you can expect and be ready to pay higher advanced fees with little to no chance of partial or full refund if the does not close for any reason.