do hard money lenders usally charge a upfront processing fee ?

Question

was wondering do hard money lenders usally charge a upfront processing fee? just dont wanna get scammed

Michael Kinsella · Answer

Hi Danette,

I tend to second what @Shaun Weekes said above.

With that said, I'd like to give you some additional food for thought with regards to processing fees.

If you are looking for a fix and flip loan, it's not uncommon for lenders to charge underwriting fees or processing fees. Some of these fees that lenders charge are aptly called, 'junk fees'.

With that said, there are a couple of reasons why a lender might charge additional up-front fees;

1. The lender has salaried staff that they are paying, e.g. underwriters, coordinators, processors. These workers are going to likely put time into the deal whether it closes or not. As a result, some lenders feel compelled to charge potential borrowers fees that can ultimately be used to support the lender's payroll.

2. Client buy-in. Are you more likely to follow-up with a lender that you have spent $0 with, or $100 with? Of course, the answer is the latter. From the lender's perspective, when you spend money, you become more invested in the loan process with that particular lender.

There are a couple of things you can do to confirm the legitimacy of the fees that you are being charged;

1. Ask them to itemize all fees. Just like an itemized receipt, the lender should be able to provide the line items associated with the fee they are asking you to pay. If they aren't willing to do that, then it's a red flag.

2. Make sure the fees aren't over-the-top. If you have a small fix and flip loan request, something like a $125k loan amount, and you are being charged thousands in processing fees, that's a red flag. The costs should be reasonable, and in line with the prospective loan amount.

Hope this helps!

Michael

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Shaun Weekes · Answer

If anyone is asking you for an upfront processing fee, there's a good chance it's a scam.  Lenders are only allowed to ask for a credit report fee and appraisal fee upfront.

I don't know any HML's that ask for an upfront fee.

Run away!!!

Patrick Britton · Answer

@Danette DeRose  Since hard money lenders fall under the category of commercial lenders, they are not bound by the rules of Frank-Dodd.  So they can charge whatever they want whenever they want and you have no means of recourse apart from simply not using them.  Very often these crooks, I mean commercial lenders, will ask for a deposit of some sort but I would only recommend doing that if you've worked with these people before and you trust them.  Certain lenders, such as RCN Capital, cannot and should not be trusted under any circumstance whatsoever.

Legitimate lenders, such as Renovo Financial tend to ask for a deposit upfront but that's to pay for the appraisal which is something that even residential lenders (restricted by the prudent restrictions of Frank-Dodd) do as well.

Danette DeRose · Answer

thank you all very much for your advice it just saddens me that people would scam someone like that

Jeff S. · Answer

Up-front fees are the biggest red flag in lending.  There is absolutely no reason a legitimate lender can’t settle everything thru escrow, title, or a closing attorney (however it’s done in your state) when your deal closes, @Danette DeRose.

The only exception might be for a credit check, which maybe costs $35, and for an appraisal.  If you must pay for an appraisal, this should go directly to the appraiser, not to the lender.  Not all private/hard money lenders require these.

Some lenders additionally expect you to pay an application fee.  This is an extremely competitive business.  You should easily be able to find lenders who don’t but if you can’t, these should be very nominal.  Certainly, no more than a few hundred dollars.  Large commercial deals can be different.

Obviously, those who charge these fees will justify them any way they can.  Any scammer can provide an itemized list and still rip you off.  Similarly, you should want to go to a lender because they are offering a competitive advantage to borrow from them, not because you gave them a fee. This doesn’t mean that everyone who charges an up-front fee is a scammer, but since this is such a competitive business, and there are so many scammers out there, why give the time of day to anyone who does?

do hard money lenders usally charge a upfront processing fee ?

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