"WHO" pays "what" when dealing with Hard Money Lenders?

2 Replies

When dealing with hard money lenders;

My questions are -

While making monthly payments to your hard money lenders;

1) Do you still pay insurance and taxes? If so to whom?

2) If using an agent, is their commission paid out of the private money or is that separately paid by the buyer?

3) Is it standard practice to pay a monthly fee for a POF letter or a pre-qualification POF letter in order to have it consistently available?

Hard money is usually short term and doesn't involve an escrow account.  So taxes and insurance are the borrower/owner's responsibility.  You'll pay insurance directly to the insurance company.  

Taxes are typically paid in the spring for the prior year.  When you buy, you get a credit from the seller for unpaid taxes.  When you sell you give the buyer a credit for unpaid taxes.  For example, say you buy on April 1 and sell on October 1.  When you buy, you would get a credit for three months taxes.  Then when you sell you would have to give a credit for nine months taxes.  That's the six months you owned it and the three months credit you received from the original seller.  Now say you bought on Jan 1, sold on July 1 and taxes for the prior year are paid on April 1.  On the purchase you would receive a credit for the full prior years taxes.  On April 1 you would have to pay those taxes, using the credit you received at closing.  Then on July 1 you would give a credit for six months taxes.

If you're buying the seller pays the commission out of the money they received from the sale.  If you're selling, you'll pay the commission.

No matter what they might say a HML cannot give you a proof of funds. They can give you a preapproval and perhaps some documentation showing they have the money to close the deal. But buying with a hard money loan is a financed deal, not cash. I've never heard of fees for having giving you such a pre-approval letter.

Jon Holdman, Flying Phoenix LLC

Thx Jon...  I appreciate the info....