A working fee or deposit is a common when working with Caribbean lenders. Our non prime bank lender charges a refundable working fee for all of their deals. Although this is not always a common practice for residential lenders in North America, it is a common practice in commercial lending; and this is part of the reason why the do it.
The Reason Behind the Working Fee
Many of the lenders who offer residential mortgages also offer commercial mortgages which is where the practice of taking a deposit is quite normal. Lenders do not want to do a pile of work, only to have the client shop the term sheet around to other lenders. So by taking the refundable deposit, the client gets there deposit back if the deal does not go ahead, but only if they do not cancel it after the term sheet is given out (and is the same agreed upon terms as prior to underwriting).
This practice of using a working fee, makes sure the client is serious, and the underwriter is not wasting their time and resources on a client who may or may not go ahead with the deal. We have seen clients decide not to proceed with a deal once they know about the deposit, however they were likely not all that serious to begin with; this more or less just forced their hand a little earlier.
How Much is the Working Fee?
The working fee varies by deal and also by lender, however it is usually in the $10,000 range. If the deal does not proceed, the deposit is fully reimbursed. If the deal goes ahead, the working fee is put towards the lender and legal fees on the mortgage. Obviously putting out this money to a bank can be a bit of a leap of faith, however Carib Capital fully vets the lenders we work with throughout the Caribbean.
Why Do They Call it a Working Fee?
In the case of our non prime bank lender, they will do an initial review of your request to determine if it fits their loan parameters. Once they determine this, they will need to do a full underwriting, which involves reviewing your financials and other documentation including checking out the market where the property is located.
This underwriting is the ‘working’ part of the deal, covering the resources and man hours to fully vet you and the property. In markets that are not as established as big North American cities, there is a lot more due diligence that goes into determining the risk associated with a particular property.
It Says on the Site, There are No Upfront Fees!
Yes, and this is still true. We do not charge any upfront broker fees, we get paid on success and success alone. We are not associated with the lenders we use in any way, shape or form; we work for you, our client.
Some of the lenders we work with do not charge a working fee, they will simply ask for a legal retainer for preparing the mortgage docs upfront. It does happen that deals fall apart, clients cancel etc, so getting stuck with the legal bill is something the lenders try to avoid.
If the lender we put you with asks for a deposit and you have concerns about it, let us know. We can set up a call between you and the lender to help alleviate those concerns.
