This is an issue that can be argued favorably by both the lender/broker and borrower. I will address this from the lender/broker side.

First of all, there aren’t many lending institutions that do not require up-front fees. If you find such a lender, my advice is to proceed with that lender immediately. But from my experience, somewhere along the funding process, you will be required to pay fees.
During the loan approval process, the lender or broker will complete a due-diligence before issuing a commitment letter. As a business person, you realize that there are expenses incurred by the lender or broker during this part of the approval process.

From my experience, 95% of those backing out before closing are the borrowers, not the lender. The question now becomes, “Why should the lender be burdened with those costs incurred on behalf of a borrower not interested in closing the deal”? They should not!

The “Up-Front” fee is a way to:

1. Qualify serious borrowers
2. Cover expenses incurred by lender on behalf of borrower, and
3. Eliminate lenders’ rate sheets from being used as a “Stalking Horse”

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