How Common are Down Payments to Apply for Loan

Question

Hey BP, I have seen some people have been asked to give a down payment just to apply for a loan (in the last conversation I had , it was with an investor who needed a commercial loan)
How common is this and why is that even asked before the loan has been given, would it apply to the balance eventually?

Cisco Gutierrez · Answer

Thanks everyone, I was trying to see if there were reasons why this could be asked for up front, if there wasn't, then it would mean a company would be a guaranteed scam. Much appreciated again!

Tyler Warrick · Answer

Great question! A down payment for the loan doesn't sound right. The person you spoke with may be referencing earnest money deposit (buyer showing the seller they have skin in the game; this can be refundable or non refundable).

Some lenders require an application fee (junk fee) and those lenders typically are more expensive to begin with. Everything in real estate is negotiable. Keep that in mind.

Andrew Zamboroski · Answer

It really depends on the loan type. As Erik mentioned, commercial loans can often have a due diligence fee, portfolio loans too sometimes. However, consider the source too! There are many scammers out there that make money taking funds on the front end. If the terms sound too good to be true, something does not feel right, or it’s not right situationally, it make not be legitimate.

When it is legitimate, it is used to cover costs on the lenders side. A lot can go into larger deals as an example and of the borrower does not perform, no one likes to get caught on the hook for those expenses. Usually any amount not used is refundable if a borrower walks away. If there is money left at closing, that amount is typically credited to the borrower as well.

I hope that helps!

Erik Estrada · Answer

Are you referring to the deposit?

The deposit is common in commercial loans. It is typically 1% of the loan amount. It is usually refundable.

If not refunded, it is usually applied towards closing costs