hard money points

12 Replies

Ok so I hope I'm  asking this question correctly,but wanted to know on a hard money loan the points is that apart of the monthly payment or is that the monthly  payment? Also how soon after closing with a hard money loan can I refinance?

Originally posted by @Harry D Johnson :

Ok so I hope I'm  asking this question correctly,but wanted to know on a hard money loan the points is that apart of the monthly payment or is that the monthly  payment? Also how soon after closing with a hard money loan can I refinance?

points are paid at close to the lender as origination points.  Payments are normally interest only for the term of the loan based on the amount borrowed and the interest rate charged.  You can pay off a hard money loan anytime you like.  Most lenders will have a minimum months payment requirement that would apply if you pay off early.

One point is one percent of the amount you are borrowing, @Harry D Johnson . If, for example, you borrow $100k at 12% interest only plus two points, traditionally your lender would wire $98k for the deal and you would pay the $2k as points to make up the difference.  Your monthly payment would be (12% per year/12 months per year) x $100k = $1000 per month. Note that points increase your effective interest rate since you are really receiving $98k but making payments on $100k. Note too that nothing in private lending is traditional.

These are not conventional loans. Private/hard money lenders are as different as fingerprints and able to compete freely by varying their terms, so long as they are within the bounds of the law. If you are flipping properties, some lenders will allow you to defer the points (i.e. fund the entire $100k without taking your $2k payment at closing) and even the monthly payments until you sell. Others will allow you to prepay at any time without penalties. This is important if you are adept at flipping properties quickly.

You should look at these as options, or questions you should ask a potential lender (among many), than assume they are the way "most" lenders work.

Every hard money lender is different from the next. Some don't charge any points just interest while others charge anywhere from 2-4 points on top of the already high interest. Once again and I can't stress this enough each lender is different from the next in what the charge and require. So its EXTREMELY important to have a good REI software to crunch all those numbers so you can see how much money everyone is making.

I would agree it is important to know where your money is going but don't lose a good deal because you think someone else might be making a bit too much. If you are able to earn enough to make it a good deal for you does it really matter what the other guy made? If it meets your parameters do the deal. The more deals you do the stronger your relationships and the more deals you will find.

I just learned something here! I've loaned hard money over the past few years, maybe half a dozen times, and I never new hard money lenders were getting points! No wonder this one flipper keeps coming back to me! Who knew (apparently lots of people but not me).

Hard money can really be hard to get paid off especially if your deal does not go as expected.  May I suggest you write into your offer a  clause that gives you a delayed settlement with possession contingent upon a loan. When this is accepted, you as the investors can occupy the property and improve it before settlement and since you have control, maybe you can assign ur contract before you have to commit to a hard money loan.

As for payments on your hard loan, there should be no payments until,the loan is due.

Leverage is as important with the seller as it is with the hard money lender.  Stay in control!

Charles

Regarding Donald and not charging points. First in Calif., to avoid usury laws , an investor who wants to lend at the hard money rates, needs to go through a broker of a Hard Money Company. The company that represents him charges points for arranging the loan. The investor may also add points. However, the investors who do not,  get the better deal and usually better borrower. I wouldn't rock the boat if you are getting consistent deals. They may go elsewhere if you start adding points.

To make Ken's point (no pun intended), the fastest we've ever been paid back on a loan was 21 days. We didn't even bother charging interest, which amounted to just a few hundred dollars. We just collected the points.

Also, our note does not use the term "Points." These are called an "Origination Fee" in our documents, which is probably more appropriate.