Is this private money loan legit?

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Is this private money loan legit?

Greg Newson
Member since 2019 · 16 posts · 3 votes

I've been asked to pay $1,365.00 for Appraisal fee, loan origination and processing fees before loan can be sent to underwriting. It's a 6 month fix and flip loan at 8.65% plus 3 points in and 2 out. It's my first deal,I know I'll pay more now then this time next year, but I wanted to ask experienced investors if this sounds common before I send that check tomorrow.

What makes me Leary is, it has to be sent as a ACH or a money transfer, they won't take a c/c.... Am I just worried for nothing?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y

SCAM SCAM SCAM   this is not private money private money are people you know.. not a company or someone off the internet.. No fee's paid in advance.. other than appraisal. Is industry norm. 

this is called an advance fee scam.. you send that in then they will keep digging you for more then when they figure out they bleed you .. they then ghost you..

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    SCAM SCAM SCAM   this is not private money private money are people you know.. not a company or someone off the internet.. No fee's paid in advance.. other than appraisal. Is industry norm. 

    this is called an advance fee scam.. you send that in then they will keep digging you for more then when they figure out they bleed you .. they then ghost you..

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  • Tchaka Owen
    Real Estate Agent · Merritt Island, FL · Member since 2017 · 974 posts · 1k+ votes
    7y

    If you send me a check for $500, you'll get the same end result of nothing.....but you'll also save $865!

    1Reply
  • Mark Safrin
    Lender · Lakewood, NJ · Member since 2019 · 247 posts · 101 votes
    7y

    BTW. 5 points? FIVE POINTS?

    The way I look at it, on a 6 month loan each point is the equivalent to an extra 2% interest. 

    Some perfectly good HMLs do charge a good faith deposit (sorry to go against the prevailing wisdom here on BP who vehemently disagree) but to my mind the prepayment _plus_ the rapacious 5 points are simply too many red flags. You can do better elsewhere. 

    As an aside, the appraisal fee is better paid directly to the appraisal company.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Mark Safrin:

    BTW. 5 points? FIVE POINTS?

    The way I look at it, on a 6 month loan each point is the equivalent to an extra 2% interest. 

    Some perfectly good HMLs do charge a good faith deposit (sorry to go against the prevailing wisdom here on BP who vehemently disagree) but to my mind the prepayment _plus_ the rapacious 5 points are simply too many red flags. You can do better elsewhere. 

    As an aside, the appraisal fee is better paid directly to the appraisal company.

    in the context of new to newer bP members posting these they are all scams we all get hit with them..  good faith fee's are not common for most hard money lenders.. I know lendinghome charges I think 195 bucks  but they are easy to vette as real.. what we are seeing is just a bunch of fake lenders out there..  Very few legit in the business real lenders charge good faith fee's..   Do hard money charges 3k but that's to buy there how to flip training manual.  so they couch it as your buying something.. not a fee. 

    advanced fee scams are as old as lending.  been around for a 100 years.  

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  • Kevin M Finley
    Developer · Kenosha, WI · Member since 2017 · 141 posts · 91 votes
    7y

    I have never paid an advance fee on a hard money loan, and I've used some crappy lenders. 

    Also any HML requiring an appraisal is going to be a pain in the ***.

    1Reply
  • Mark Safrin
    Lender · Lakewood, NJ · Member since 2019 · 247 posts · 101 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Mark Safrin:

    BTW. 5 points? FIVE POINTS?

    The way I look at it, on a 6 month loan each point is the equivalent to an extra 2% interest. 

    Some perfectly good HMLs do charge a good faith deposit (sorry to go against the prevailing wisdom here on BP who vehemently disagree) but to my mind the prepayment _plus_ the rapacious 5 points are simply too many red flags. You can do better elsewhere. 

    As an aside, the appraisal fee is better paid directly to the appraisal company.

    in the context of new to newer bP members posting these they are all scams we all get hit with them..  good faith fee's are not common for most hard money lenders.. I know lendinghome charges I think 195 bucks  but they are easy to vette as real.. what we are seeing is just a bunch of fake lenders out there..  Very few legit in the business real lenders charge good faith fee's..   Do hard money charges 3k but that's to buy there how to flip training manual.  so they couch it as your buying something.. not a fee. 

    advanced fee scams are as old as lending.  been around for a 100 years.  

    I guess the question would then be how to tell the few legit ones from the multitude of scammers.

    From the lenders perspective there is a huge percentage of loan applicants that are simply not serious. The time and effort and at times financial costs servicing the loan requests is not insignificant. 

    A good faith deposit towards closing costs separates the chaff from the wheat quite effectively. The HML I'm thinking of that charges this has not only closed vastly more loans per originator since a GFD was instituted but has hired more loan processors to keep up with the inflow of loan requests. I would have thought that references would be requested but this has not been necessary.

    It would seem fairer and definately more accurate to temper the automatic chorus of "Its a scam" with words like "probably" or "most" etc.

    Cheers.

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  • Mark Safrin
    Lender · Lakewood, NJ · Member since 2019 · 247 posts · 101 votes
    7y
    Originally posted by @Kevin M Finley:

    I have never paid an advance fee on a hard money loan, and I've used some crappy lenders. 

    Also any HML requiring an appraisal is going to be a pain in the ***.

    I'm curious about the aversion to an appraisal. HMLs usually offer asset guaranteed loans, usually offering a percentage of LTV. Have you used a HML that lends on current value without requiring an appraisal to determine the property's as is value?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Mark Safrin:
    Originally posted by @Kevin M Finley:

    I have never paid an advance fee on a hard money loan, and I've used some crappy lenders. 

    Also any HML requiring an appraisal is going to be a pain in the ***.

    I'm curious about the aversion to an appraisal. HMLs usually offer asset guaranteed loans, usually offering a percentage of LTV. Have you used a HML that lends on current value without requiring an appraisal to determine the property's as is value?

    many hard money lenders use their own sources for valuations and do not order formal apprasials..

    IE  3 I know of off hand.

    Lending home

    Conventus

    and Iron Bridge 

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  • Mark Safrin
    Lender · Lakewood, NJ · Member since 2019 · 247 posts · 101 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Mark Safrin:
    Originally posted by @Kevin M Finley:

    I have never paid an advance fee on a hard money loan, and I've used some crappy lenders. 

    Also any HML requiring an appraisal is going to be a pain in the ***.

    I'm curious about the aversion to an appraisal. HMLs usually offer asset guaranteed loans, usually offering a percentage of LTV. Have you used a HML that lends on current value without requiring an appraisal to determine the property's as is value?

    many hard money lenders use their own sources for valuations and do not order formal apprasials..

    IE  3 I know of off hand.

    Lending home

    Conventus

    and Iron Bridge 

    Thanks Jay. I'm learning a lot here on BP. Much appreciated. 

    0Reply
  • Kevin M Finley
    Developer · Kenosha, WI · Member since 2017 · 141 posts · 91 votes
    7y
    Originally posted by @Mark Safrin:
    Originally posted by @Kevin M Finley:

    I have never paid an advance fee on a hard money loan, and I've used some crappy lenders. 

    Also any HML requiring an appraisal is going to be a pain in the ***.

    I'm curious about the aversion to an appraisal. HMLs usually offer asset guaranteed loans, usually offering a percentage of LTV. Have you used a HML that lends on current value without requiring an appraisal to determine the property's as is value?

    I prefer to work with local hard money lenders that do not require appraisals but have someone on staff that can verify retail comps and knows the market. Appraisers, in my experience, are not investors. They cannot accurately come up with an after repair value and they end up using similar comps despite the scope of work they have been provided. Additionally, any HML that requires an appraisal AND states that they close in 7-10 days is full of it. Appraisals right now take anywhere from 14-20 days minimum. If your seller wants to move quick and you have made timing promises based on promises from an HML, it can get nasty quickly.

    2 deals I've done with appraisal HML. This HML required 10% LTC and would loan up to 70% ARV:

    -$90,000 purchase, $26,500 renovation, $165,000 ARV. The appraiser came in and appraised at $130,000, thus my total loan amount was only $91,000 with a $10,000 repair escrow. My cash needed just increased by $16,500. Also, you don't get the full $10,000 escrow until the entire project is 100% completed, so really I needed my down payment + $26,500 in working capital + holding costs. This deal suddenly required a ton of cash. I sold this house for $169,900 in 3 days.

    -$72,000 purchase, $83,000 renovation, $209,000 ARV. Appraisal: $145,000. Total loan amount $101,500. This gave me a $36,700 renovation escrow instead of the $83,000 I requested. I had to close so I bought it anyway and refinanced with a private money lender through some other connections. We got this house done and it sold for $225,000 in 4 hours.

    2Reply
  • Mark Safrin
    Lender · Lakewood, NJ · Member since 2019 · 247 posts · 101 votes
    7y

    Interesting. We usually use Appraisal Nation and their recent track record with my residential loans at least has on average been considerably less than 14-20 days. Perhaps I have been fortunate or they are particularly efficient in the states we focus on.

    But yes, our advertising of closing from _as little_ as X days is quickly tempered with an explanation of the variable speed of appraisals. 

    Using a 3rd party that is paid directly by the borrower does seem to have its advantages so far. It cuts out or at least cuts down the haggling over As Is and AR values. 

    0Reply
  • Greg Newson
    OP
    Member since 2019 · 16 posts · 3 votes
    7y

    Thank you all for the advice, likes I said, I'm new and still don't know what I don't know. My problem it's, I run a 501c-3 veterans outreach, this house is being flipped to fund its programs, a hard money lender usually won't do our loans because technically we're a "non profit". I believe I'm going to have to go thru a private money lender, and the worst part is I've already paid $2500 to a whosaler for the earnest money, so I'll loose that if I don't close by end of the month. Does anyone have any recommendations what I should do at this point in my situation? I really appreciate all the knowledge I get from every one on BP, I promise once I get a deal or two done, I'll stop sounding lime such a "newbie"

    0Reply
  • Scott WolfPro Member
    Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 957 votes
    7y

    @Greg Newson why would being a non-profit affect a HML working with you?

    Also, maybe one of your donors would be willing to lend money for the flip if presented in an intelligent manner, and would do it as a donation.

    0Reply
  • Greg Newson
    OP
    Member since 2019 · 16 posts · 3 votes
    7y

    @Greg Newson why would being a non-profit affect a HML working with you?

    I'm not sure Scott. I've just been told by a HML that he couldn't, and he didn't know any hard money lenders who could, fund a 501c-3 Corp. That was all the effort I put into it, I just started looking more into something like private money outside my family. If you have any suggestions on where I should look being a new investor, let me know. Right now I'm going to look at Revolver Financial out of Kansas, but if you have any better ideas, I'd appreciate the info.

    0Reply
  • Scott WolfPro Member
    Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 957 votes
    7y

    @Greg Newson, check BP's HML list, or as I said in my previous post, ask a donor to give the money for the flip as a donation, or lend it at a low rate.

    0Reply
  • Mark Safrin
    Lender · Lakewood, NJ · Member since 2019 · 247 posts · 101 votes
    7y

    @Greg Newson

    Lending to a 501c-3 is usually avoided by HMLs. It is quite challenging to foreclose on a not for profit and underwriters don't like such loans.  

    Besides any legal complications for the deal itself, most lenders and note holders would prefer to not to be known forever as the one to put charity X or church Y out into the street? The point of an asset based loan is that it is secured on an asset that can be foreclosed, if necessary, with only the usual hassles involved.

    I'm new to BP but perhaps spending $19 to become a BP Plus member for a month and posting your requirements on BP Marketplace should be considered? 

    0Reply
  • Mario Duran
    Lender · Chino Hills CA · Member since 2018 · 3 posts · 0 votes
    7y

    @Greg Newson

    Appraisal fees coming out of your pocket is understandable but origination fees should be included in the loan. Rates and point all depend on the loan and LTV. Your rate is relatively low which is why your points are so high. The amount of skin in the game you have as a pose to the lender can cause rates to vary. Private Money could be anyone including a Family Office like ours. ACH withdraws are a common practice to help secure payment and take the head ache of remembering to pay it your self. A 6 month loan is quick and worst case after rehab you go conventional to take out your HML.

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  • Perry Farella
    Lender · Chicago, IL · Member since 2016 · 189 posts · 153 votes
    7y

    Just to chime here as a regular FHA, VA and conventional rehab lender. The HUD FHA 203k rehab loan will sometimes allow a non-for-profit to be the borrower if it has strong reserves and financials. Another alternative is the VA rehab loan where the end veteran buyer purchases the property with a VA 100% loan which then includes all the rehab dollars.

    I have had investor clients also buy a home to rehab with a 15% down payment  based on total of purchase price plus rehab dollars needed, then fix it, flip it and repeat. The loan is a conventional fixed rate, maybe 5.50% or 6% these days  , for 30 years with fees less than Private  or HM lenders. My blog has stories of how they work.

    0Reply
  • Erika Sutphin
    Las Vegas, NV · Member since 2015 · 13 posts · 1 vote
    7y

    @Perry Farella do you close loans in Nevada?

    0Reply
  • Kevin M Finley
    Developer · Kenosha, WI · Member since 2017 · 141 posts · 91 votes
    7y
    Originally posted by @Perry Farella:

    Just to chime here as a regular FHA, VA and conventional rehab lender. The HUD FHA 203k rehab loan will sometimes allow a non-for-profit to be the borrower if it has strong reserves and financials. Another alternative is the VA rehab loan where the end veteran buyer purchases the property with a VA 100% loan which then includes all the rehab dollars.

    I have had investor clients also buy a home to rehab with a 15% down payment  based on total of purchase price plus rehab dollars needed, then fix it, flip it and repeat. The loan is a conventional fixed rate, maybe 5.50% or 6% these days  , for 30 years with fees less than Private  or HM lenders. My blog has stories of how they work.

    Traditional funding is for sure not going to close by the end of the month. I had a 203k take 108 days to close 

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  • Account Closed
    Rental Property Investor · Tampa FL 33610 · Member since 2011 · 254 posts · 56 votes
    7y

    Yes @Mark Safrin there are many applicants that are not serious. 

    HML should lend regardless of non profit. Your name is on the loan. ??? Greg.

    Wiring and ACH is common. HML is 21-30 days maybe.

    0Reply
  • Perry Farella
    Lender · Chicago, IL · Member since 2016 · 189 posts · 153 votes
    7y

    Kevin- Yes no regular loan will close in less than 2 weeks. It is also possible to use them as refinance loans after you pay in cash or pay with hard money. Or later after you do the rehab yourself, refi into a more conventional loan to rid yourself of the hard money circumstances.

    0Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes
    7y

    In regards to appraisals Appraisal Nation and Clear Capital are quite good at calculating ARV. You can also pay them directly so no worries about who your money is going to.

    Clear Capital has an incredible analyzer program they use and have access to over 90% of the US residential market. 

    0Reply
  • Nate Marshall
    Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 735 votes
    7y

    Some lenders have started doing application fees. Usually $199.00. It's mostly to deter to tire kickers. They have to pay their loan officers, underwriters and processors so this helps. They also use it as an incentive. If you apply this week we will waive the application fee. 

    But you can also verify these lenders with the SEC, they're well known and have a solid presence.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @Greg Newson:

    @Greg Newson why would being a non-profit affect a HML working with you?

    I'm not sure Scott. I've just been told by a HML that he couldn't, and he didn't know any hard money lenders who could, fund a 501c-3 Corp. That was all the effort I put into it, I just started looking more into something like private money outside my family. If you have any suggestions on where I should look being a new investor, let me know. Right now I'm going to look at Revolver Financial out of Kansas, but if you have any better ideas, I'd appreciate the info.

    reason is these would be non recourse HML dont make non recourse loans generally

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