Origination fee... real or fake?

[David Simpson]

Is it common, when dealing with private money lenders, to have an "Origination fee"?  How do you know that it isn't a scam?  Does anyone recommend a private money lender for a rookie to real estate investing?  I currently have 2 deals on the table, with no funding.

[Mike Hern]

Quote from @David Simpson:

Is it common, when dealing with private money lenders, to have an "Origination fee"?  How do you know that it isn't a scam?  Does anyone recommend a private money lender for a rookie to real estate investing?  I currently have 2 deals on the table, with no funding.

 You pay any origination fee, generally 1% to 2% depending on the interest rate, at closing in front of an escrow agent. Any fees before that are scams.

If they say it's a "processing fee", same thing. 

[Account Closed]

Hi, David. You usually won't find a lender who doesn't require an origination fee. Very few do not require it, but the origination fee is how companies make their money for the work that goes into originating a loan. Also, many loan officers are commission only and the origination fee pays their commission. 

Hope this helps, would love to connect.

[Mohammed Rahman]

Hey @David Simpson - origination fees are normal. I used to work as a business loan broker, origination fees also applied in that space. That's how banks make money, interest and origination fees. 

[Robin Simon]

Quote from @David Simpson:

Is it common, when dealing with private money lenders, to have an "Origination fee"?  How do you know that it isn't a scam?  Does anyone recommend a private money lender for a rookie to real estate investing?  I currently have 2 deals on the table, with no funding.

 Yes - its perfectly common and normal, especially in a rising rate market like this where instead of really jacking up rates, lenders will compensate by allowing you to pay more in origination fee (points) so the property will cash flow and still make sense for both parties

[Brandon Beardt]

Quote from @David Simpson:

Is it common, when dealing with private money lenders, to have an "Origination fee"?  How do you know that it isn't a scam?  Does anyone recommend a private money lender for a rookie to real estate investing?  I currently have 2 deals on the table, with no funding.

 Hi David,

Yes, it's almost industry standard for private money lenders to have some sort of origination fee. That being said, it should ALWAYS be paid at closing once the loan actually closes. There are MANY brokers/lenders in the forums that can work with beginner RE investors, I would say most if not all. Usually they'll just require that you've had some sort of home ownership in the past, such as a primary residence, but that's not always the case. You can do some research on different lenders in the Network tab above or check out the various forums where they are actively posting. I'd say do some research and understand exactly what you're getting yourself into when working with a specific broker/lender. Don't go into the process not knowing what to expect. Also, talk to a bunch of them, you'll learn a lot along the way which'll help you grow as an investor. Best of luck to you!

[Eddie Torres]

@David Simpson completely normal

[Erik Estrada]

Quote from @David Simpson:

Is it common, when dealing with private money lenders, to have an "Origination fee"?  How do you know that it isn't a scam?  Does anyone recommend a private money lender for a rookie to real estate investing?  I currently have 2 deals on the table, with no funding.

 Hey David, 

The origination fee is perfectly normal. Typically they are from 1.5%-2% of the loan amount. Always paid at closing. 

If I may ask, why are you seeking private funding? Typically these loans are higher in rates and fees. 

[Scott Wolf]

Quote from @David Simpson:

Is it common, when dealing with private money lenders, to have an "Origination fee"?  How do you know that it isn't a scam?  Does anyone recommend a private money lender for a rookie to real estate investing?  I currently have 2 deals on the table, with no funding.

 As mentioned, it is 100% normal.  But only pay it at the closing table!!!!!  Any fees before that (except maybe appraisal or survey) are BS!

[Jay Hinrichs]

the way your asking the question I will bet dollars to donuts they are asking for a fee in advance to be sent to them through one of the on line pay portals.. these are ALL scams..  origination / points are as stated above included in virtually all loans.  Its when you pay it that is the issue.  Points/origination fee is paid at closing and ONLY to the title company Escrow company or closing attorney who ever is facilitating the close  NEVER EVER directly to the broker or lender. those are all scams full stop.

[Guy Gimenez]

Depends on your definition of private money. I've had true PML's (individuals) for more than 15 years and I pay them points (this is pretty much the standard for PML's), but never an origination fee. My PML's are paid nothing monthly and receive their principal, interest and points when I close with the end buyer with nothing being paid monthly. Sounds like you're really using a hard money lender instead of a true PML. 

[Yamila Perin]

Hello David,

Origination fees are common in all type of loans, could be private money or not, that is how lenders makes their money. The origination fee most of the time is base on your experience, credit score and the property LTARV. I always recommend to have a lender ready before getting a property under contract. If you want more information you can send me a DM.

Have a nice day.

[Nick Belsky]

@David Simpson

Origination fees due at closing are perfectly normal.  Usually between 0-3 points is what most lenders will charge.

Be leery of Due Diligence or Commitment Fees that are asked for up front before closing.  Not all are scams, but many are.  I personally, don't work with lenders who ask for these fees up front as there are too many other options that simply don't and offer the same or better terms.

Be careful out there.

Cheers!