### What is a commitment fee in the context of a loan? - [x] A charge by a lender for agreeing to provide a loan - [ ] An upfront payment for loan origination services - [ ] A fee to secure a favorable interest rate after receiving the loan - [ ] A fee for the borrower to pay towards the loan principal > **Explanation:** A commitment fee is a fee charged by a lender in exchange for their agreement to make a loan. This allows a borrower to secure financing before making a purchase offer. If the borrower doesn't take the loan by a certain date, the commitment is no longer valid. ### Who typically pays a commitment fee? - [ ] The lender to the borrower - [ ] The real estate agent - [x] The borrower to the lender - [ ] The closing agent > **Explanation:** The borrower pays the commitment fee to the lender to secure the promise of the loan. This ensures that the lender is committed to providing the funds for the purchase up to a certain date and amount. ### What does the commitment fee ensure for the borrower? - [ ] Lower monthly payments - [ ] Better property options - [x] A firm commitment of financing before making a purchase offer - [ ] A waiver of other fees associated with the loan > **Explanation:** The commitment fee ensures that the borrower has a firm commitment for financing, which can be critical when making a purchase offer. This allows the borrower to tackle purchase opportunities more confidently without the worry of financing falling through. ### What happens if the borrower does not use the loan by the commitment date? - [ ] The fee is automatically refunded - [x] The lender's commitment is no longer valid - [ ] The borrower faces legal penalties - [ ] The interest rate gets increased > **Explanation:** If the borrower does not use the loan by the specified commitment date, the lender's commitment is no longer valid. The fee paid essentially compensates the lender for holding the funds ready but does not obligate them once the window has closed. ### Which relationship is affected by the payment of a commitment fee? - [x] Borrower and lender - [ ] Borrower and seller - [ ] Buyer and real estate agent - [ ] Seller and lender > **Explanation:** The payment of a commitment fee primarily affects the relationship between the borrower and the lender. It secures a commitment from the lender to provide the loan under specified terms, making the process of property purchase smoother for the borrower. ### What part of the loan process typically incurs a commitment fee? - [x] Before making a purchase offer - [ ] During the underwriting process - [ ] At closing - [ ] After the loan is funded > **Explanation:** A commitment fee occurs before making a purchase offer. At this stage, the borrower secures financing from the lender to demonstrate that they have the means to pay for the property, strengthening their purchase offer. ### If a borrower pays a commitment fee, what aspect does it generally not guarantee? - [x] Final approval for the loan - [ ] A maximum interest rate - [ ] The availability of funds up to a certain date - [ ] The maximum loan amount > **Explanation:** While the commitment fee secures the lender's commitment to provide a loan up to a certain amount and at a specific interest rate by a certain date, it doesn't substitute for the final loan approval process, which may still involve additional checks. ### What might the term ‘commitment’ in a commitment fee refer to? - [ ] The borrower's intent to sell their property - [ ] A guarantee the property will not be sold to someone else - [x] The lender's agreement to provide the financing - [ ] The lender's decision to foreclose > **Explanation:** The term 'commitment' in a commitment fee refers to the lender's agreement to provide the required financing, ensuring the borrower that funds will be available under specific terms and conditions. ### In the scenario provided, what does the buyer's payment of the commitment fee accomplish before making a sales offer? - [ ] Guarantee of a property inspection - [x] Assurance that financing will be available - [ ] Waiver of all additional loan fees - [ ] Guaranteed lower interest rate > **Explanation:** By paying the commitment fee, the buyer ensures that financing will be available. This strengthens their position when making a sales offer, knowing that they have the necessary funds secured. ### Can the commitment fee be refunded if the borrower decides not to proceed with the loan? - [ ] Always - [x] Typically not - [ ] Only if the property was appraised below market value - [ ] Only if the interest rate changes > **Explanation:** Commitment fees are generally non-refundable because they are charged to compensate the lender for reserving funds and making the specific arrangements to hold the commitment. If the borrower decides not to proceed, the fee has already covered the lender’s costs.