Upfront Fees for a Hard Money Lender

7 Replies

Hello all!

I wanted to ask if the following fees seem in line for a Hard Money Loan:  

$700 at time of application submission for SOW Review, Renovation Cost Validation and an Appraisal.

$175 Draw Schedule Review

$235 Document Processing

$350 Lenders Attorney

I've only used HM once before on a flip I did in 2005 in Massachusetts.  I now live near Baltimore and I'm not sure if this is common for this area.

Thanks!

@Jason Hatfield I do JV instead of HML but I would check them out very well. I would be leary of a company wanting upfront money, just my thoughts.

An upfront fee for an appraisal is common, though you should pay it directly to the appraiser.  Those two other up front fees are just profit generators.   All these fees seem excessive to me.  Allowing $500 for the appraisal, that's $960 in junk fees.   I'd see if some of those could be negotiated away.

This post has been removed.

Originally posted by @Jason Hatfield :

Hello all!

I wanted to ask if the following fees seem in line for a Hard Money Loan:  

$700 at time of application submission for SOW Review, Renovation Cost Validation and an Appraisal.

$175 Draw Schedule Review

$235 Document Processing

$350 Lenders Attorney

I've only used HM once before on a flip I did in 2005 in Massachusetts.  I now live near Baltimore and I'm not sure if this is common for this area.

Thanks!

 The appraisal fee is normal, but draw fees and document processing are just additional profit to the lender.  You can try to get those waived, but of course it also depends on what rate you are paying on the loan.  Up front application fees are a red flag.

@Jason Hatfield

Not sure you are asking the right question. IMO the right question is: will the deal make money? 

I tried to compare your costs to those I paid for my recent hard-money loan for a Baltimore rehab, and the expense categories don't line up well, so it's impossible to get a clear idea. But just eyeballing the numbers, it looks like I paid more than your lender is asking. My lender operates in Northern Virginia, where everything costs more!

But I'm a first-time rehabber, and this was the best loan I could get. Maybe I could aim for a lower-cost loan next time. But for now, I expect to clear a nice profit, so I'm not that worried about it. 

Also, you didn't tell us the interest rate and points on the loan. Consider that conventional banks often charge more points on lower-interest loans. So if you got good terms on the loan, perhaps you can justify paying higher upfront costs.

Guess the other question is, is this the only lender that will work with you? Maybe you need to build up a track record and some relationships in MD to get the advantageous interest rates you want, and for now you have to take less-than-stellar terms. 

If this is your situation, but the deal is a moneymaker, I'd say, go after the deal. If the terms of the loan are going to make or break the deal, it's not a deal.

Good luck, Jason, and let us know how you fare.

Nancy Roth

$450-500 of the $700 probably goes toward the appraisal....just make sure they use an independent system like LENDERX.(no affiliation). The rest of those fees all go toward their bottom line..

There are plenty of HML and many on BP that completely do their own deal assesments.

My guess is your talking to a HMB...." hard money broker"....they use someone else to fund you rather then their own fund, loc or private investors...the hmb is more likely to charge upfront fees....

IMO....if your deals good you should only be paying at the closing table....get a prelim hud from title.

Hope this helps and best wishes!

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