OMG a bunch of people basically have told you that it is a scam and you are still going to do it???? Sometimes hard headed people have to learn the hard way. You should never want something so bad that when others can see that it is a scam and you can not.
If you have done 4 of these already, how did you do them?? Keep doing them that way if you made money. You had to have made money or else you would not have done 3 more, right??
HUH?? There's frequently an application fee - - in fixed dollars. This sounds bogus and I would be looking elsewhere for a loan.
"Due Diligence" is your activity, not the banks. A Bank typically calls this an Underwriting Fee, to even the name of the fee IMO is bogus. WALK away and call a load broker.
Your stated experience in your profile should have lead you to that conclusion.
yes it's for the lenders due diligence and they say the only reason they wouldn't do the loan is if I had a bankruptcy and I haven't had one so they said it should be fine I just have never done that
yes it's for the lenders due diligence and they say the only reason they wouldn't do the loan is if I had a bankruptcy and I haven't had one so they said it should be fine I just have never done that
I question the integrity of the lender - - can you share the name of the lender? Certainly it is not one of the Big National Banks.
Jim Bryson the only upfront fee you should be willing to pay would be a $300-$400 appraisal fee.
Everything else should be paid by the title company or attorney at closing. NOT before.
This sounds like a scam to me. You will not see these people again if you give them money upfront.
Who is this "lender". Is it a real bank, or just someone off the internet? Trust me, a BK is not the only reason a legit lender wouldn't do a construction loan.....they'll look at the market for feasibility of the project, your experience and your financials as a whole, and 3.5% seems awfully high. If they really told you that, I'd have to say they're a scam.
Wait wait... hold on. Don't be scared away yet!!
3.5 is high for sure, but lenders DO conduct extensive due diligence, including environmental, obtaining an appraisal and review, review of survey, title, they usually order flood certs, sometimes hire an abstracting company to review and approve budgets, draw schedules, etc. and leases if you're looking for construction to perm, and so on... requiring a sum up front is far from unusual, especially for a construction loan. Appraisals and review are more like $3,500-4,000, cost to review budgets, scopes of work and draw schedules can be another $1,000-3,000 depending on complexity. Environmental, from $500 if you have your own phase I performed by a company acceptable to the lender, to maybe $3,000+ if they perform their own. Part of that 3.5% may also be an origination or commitment fee. Either way, I wouldn't run or assume fraud just yet! Are they offering good terms? Who is the lender?
A private lender, not institutional? Did you receive a term sheet or commitment? They should be breaking down in writing what your bigger costs will be. Most of that fee should also be refundable if they can't ultimately offer you the loan. Do you have anything in writing? Is the lender a person or an entity? Have you googled a little to see if they have any reviews? What kind of terms were you offered? If you are working through a broker, they should be bringing you a few different options, not just one, so that you can compare and make a more educated decision.
They sent me a contract with terms does not show the breakdown on the fee. It does say if the lender decides to cancel they will refund in full. I have 72 hours hrs. to cancel.
Sounds high. I just closed a 4 million dollar loan and due diligence was less than 20k. I would not pay it, but if you are still considering, I have a bridge in San Francisco and New York for sale.
The lender is shown as individual and sent me a letter we both signed that basically states if I have no bankruptcies he is fully prepared to move forward with the funding.
@Mark Creason what about a point commitment fee on top of DD costs? It's still way too high and I would be a little careful for sure and make sure I did my homework, but it doesn't initially (without more details) scream scam to me. Depends who this lender is and whether they are reputable. @Jim Bryson is this a hard money or bridge loan or a real construction loan? When you reference a "contract" it leads me to believe you are dealing with a person, not an institutional lender. Have you shopped any real banks?
"basically" states? Have they already conducted DD and they are looking for reimbursement? I think we're missing some important details. What are the loan terms they offered you? If they ask for a big upfront number and the actual terms sound too good to be true, they likely are. I would never want to disparage a hard money lender, but for a new-build retail center, if numbers work, conventional construction to perm financing should be doable. Have you checked in with any banks?
I have built and sold four of these but due to my credit and net worth the bank is not an option. I did the ones in the pass with banks but not in my name.
So the 3.5% is your equity requirement maybe? Do you already own this property or will be purchasing? I think I'd have to see this contract to understand what's going on. I just saw your post about the back end fee and again, way too high, but conceptually, not really that rare, just not usually called that. Often it's an exit fee if you don't convert to perm with the same lender, which can sort of be equated to a prepay penalty, but doesn't sound like that's what's going on here. And a 7 year term for a construction loan??? Does that include a permanent phase? Do the terms change at some point when construction is completed? The whole scenario is confusing to me and I would think you could do much better unless I'm missing something. Again, is there something about this deal that a conventional lender wouldn't touch that makes a hard money lender sensible here? I tried not to be too skeptical and to give this lender the benefit of the doubt initially... but I'm starting to agree that, assuming your understanding of the terms is correct, this is all just a little bit too fishy!