Insurance policy on loan?

8 Replies

Ok I have a private lender willing to fund me/ offer a line of credit but I have a question because I’ve never ran into them asking for their loan to be insured. So they had me fill out an application on a website for their loan to be insured and the insurance company asked for a 2k fee. Is this standard practice or am I just being paranoid? I don’t want to give someone my money and lose out on a deal! Any advise would be appreciated thanks.

Usually you simply add the lender as a Mortgagee on the fire policy.

PMI for a private is very rare, I’d be leery.

@Daniel Ordonez  

There is no way insurance should ask for that kind of fee. could it be the insurance premium or deposit premium?

Or maybe a banking fee or origination fee on the banking side?

In states where an insurance fee can be changed, there is usually a disclosure form showing what the commission is as well.

Does not sound legit to me.

Private lenders rarely require PMI, though they ask title insurance up to total loan amount as well as Home owners insurance. Even if a private lender ask PMI, $2k is too high and should not be paid up front. Be aware if scam.

Many scammers have figured out that some borrowers know not to pay up-front application fees, due diligence fees, or "success" fees, so they had to make up another up-front fee that no one has ever heard of. It's become a very common lending scam discussed here every once in a while, @Daniel Ordonez.

There is no such thing as an insurance policy that guarantees a private loan. PMI, an unfortunate misnomer, is for conventional loans (Fannie, Freddy, etc.). The only insurance any legitimate lender will ask you to pay for is a lenders title policy and fire/hazard insurance (or landlord ins., or homeowner ins., etc., as appropriate). These would be purchased when you close your deal. The title insurance would be paid out of the proceeds you wire to title or to your closing attorney. The fire & hazard insurance would be paid by you directly to the insurance company, usually by sending them a check.

Between this and your other post wondering if a 3% loan for $500 up front is legit, it's clear you are going to get your lunch eaten by looking for loans online, Daniel. My strong advice to you is to get off the Internet.

Lending is a relationship-based business. The best place to find lenders is eyeball-to-eyeball at local real estate clubs. Go to lunch with a few, armed with a list of questions. If you don't know what to ask, read this post

Originally posted by @Daniel Ordonez :
Ok I have a private lender willing to fund me/ offer a line of credit but I have a question because I’ve never ran into them asking for their loan to be insured. So they had me fill out an application on a website for their loan to be insured and the insurance company asked for a 2k fee. Is this standard practice or am I just being paranoid? I don’t want to give someone my money and lose out on a deal! Any advise would be appreciated thanks.

 If this is a home owners policy you will pay 12 months ahead through escrow.  If it's a life policy there is no upfront fee. 

Either way don't go on some website and pay an additional 2K upfront.  This has scam, fraud written all over it!

Thanks everyone for your input and all your knowledge I’m glad BiggerPockets has these forums for us newbs to ask questions and not get scammed

Join the Largest Real Estate Investing Community

Basic membership is free, forever.