Disclosure of Commercial Mortgage Origination Charges

Obtaining a commercial mortgage is a significant financial transaction for businesses, and transparency in the disclosure of origination charges is crucial to ensure that borrowers understand the full cost of their financing. Lenders are required by law to provide clear and comprehensive disclosure of commercial mortgage origination charges to borrowers. This disclosure is designed to help borrowers make informed decisions about their financing and avoid any unpleasant surprises down the road. Commercial mortgage origination charges typically encompass a range of fees and costs associated with the loan application and approval process. These charges are often presented as a percentage of the loan amount or as flat fees. Common components of commercial mortgage origination charges include:

Loan Origination Fee: This is a fee charged by the lender for processing and underwriting the loan. It is typically a percentage of the loan amount and can vary from lender to lender.

Appraisal Fees: To determine the value of the property being financed, an appraisal is necessary. The borrower is usually responsible for covering the cost of this service.

Credit Report Fees: Lenders often pull credit reports to assess the borrower’s creditworthiness. The cost of obtaining these reports is typically passed on to the borrower.

Legal and Closing Fees: Legal professionals may be involved in drafting and reviewing the loan documents. These fees are typically borne by the borrower and go now.

Title Search and Insurance: To ensure the property has a clear title, a title search is conducted. Additionally, lenders may require title insurance, and these costs are often included in origination charges.

Residential Mortgage

Flood Certification and Environmental Assessment: Depending on the property’s location and the type of business, these assessments may be required to ensure compliance with regulations.

Processing and Underwriting Fees: These fees cover the costs associated with processing and underwriting the loan, such as administrative and labor costs.

Commitment Fees: Some lenders charge a commitment fee to reserve the funds for the borrower, often as a percentage of the loan amount.

Broker Fees: If a mortgage broker is involved in arranging the loan, their fees may also be included in the origination charges.

Borrowers should be provided with a Loan Estimate, which is a standard form used to disclose the costs and terms of a mortgage loan.  it is crucial for borrowers to carefully review this document, as it provides a breakdown of all expected origination charges. The Loan Estimate should clearly state whether the origination charges are a fixed amount or a percentage of the loan amount, enabling borrowers to make an apples-to-apples comparison between different lenders. In addition to the Loan Estimate, borrowers should also receive a Closing Disclosure at least three days before the loan closing.

This document details the final terms and costs associated with the loan, ensuring that borrowers have an opportunity to review and question any unexpected charges before committing to the loan. Transparency in the disclosure of commercial mortgage origination charges protects borrowers from hidden fees and unexpected financial burdens. It empowers them to compare offers from different lenders, choose the most cost-effective financing, and make well-informed decisions that are in the best interest of their business. Borrowers should take the time to read and understand these disclosures, and if they have any questions, they should not hesitate to seek clarification from their lender or a legal professional to ensure a smooth and financially sound commercial mortgage experience.