What Are The Fees For Hard Money Loans?
Oct 05, 2016
Depending on which hard money lender you work with, getting a real estate loan from a commercial hard money lender is sometimes no simple task. Some hard money lenders are notorious for having hidden costs. Other Hard Money lenders are transparent. Knowing what to look for can save you thousands in total loan costs.
A worthy piece of advice for any mortgage seeker to adhere to is, “always read the fine print”. ‘Money costs’ – no pun intended. If you are a prospective borrower, getting the best loan for your real estate financing needs is a priority. But knowing which loan to take is not always the easiest thing to do. After all, the interest rate alone is not a determining factor of which loan is ‘best’.
3 Things About Hard Money Loans To Consider
Whatever the reason a borrower has for utilizing a commercial hard money loan for a commercial mortgage, they must take 3 things into consideration:
- A hard money loan approval may be easier to achieve, but that easy access will cost them slightly more.
- Hard money loans are funded through private money sources rather than government entities or conventional lenders. Therefore, hard money loan terms are not subject to the same lending criteria and rules as a conventional lender.
- The higher cost of hard money loans is directly associated with to the higher risk of the loan scenario that the lender/investor are assuming.
Understanding Loan Fees
If you can understand the fees involved when applying for a commercial mortgage from a private lender will help you determine who is truly offering the best overall terms to originate your loan. There are definitely times where a private lender will advertise and offer a lower rate in order to attract a borrower but collect a higher level of fees as a condition of the loan. In some of these situations, the overall cost ends up being more than a ‘higher rate’ competitor.
Breaking Down Loan Fees
The fees required for a hard money loan can be broken up into the beginning, processing, and end of the loan term. Most hard money lenders charge the borrower upfront fees for originating the loan; also known as ‘points’. This fee will often cover underwriting costs, document processing, due diligence and an appraisal or some other form of property evaluation. Before loan funding, the borrower can also be held responsible for attorney and title fees as part of closing costs. Most hard money loans are short-term, so most likely your loan will be an interest-only loan. This means you will begin making monthly payments on only the interest of the money borrowed, which will go to the lender and private investor.
As the loan term comes to an end, the balloon or final payment will be due. To extend your loan term, most lenders will charge additional points to generate loan renewal documents that lengthen the loan term before the balloon payment. Other fees that could persist besides renewal fees, but can be avoided, are late fees on monthly payments and advances.
Not All Hard Money Lenders Are The Same
In would be good to note that not all hard money lenders operate the same. It’s important to do your research when looking to take out a mortgage. Some lenders, like Riverdale Funding, don’t believe in “fine print” or charging borrowers hidden fees.
Riverdale Funding, LLC has built their lending company around the principles of customer service and transparency. Borrowers are provided full explanations and disclosures before the loan process progresses forward.
Once Riverdale quickly determines if they want to proceed with a loan offer and the borrower subsequently approves of the loan terms, a bona fide commitment contract is drawn up. At this juncture, the borrower is responsible for the fee to draw up their loan commitment. This fee is used as payment for a third party attorney review. None of this fee belongs to Riverdale.
What Is Required To Get A Hard Money Loan
Riverdale Funding requires an appraisal report and broker price option (BPO), to determine the fair value of a property that will be used as security. Other lenders lump these costs as part of a good faith deposit but do not offer the borrower with a break-down of how their monies were used.
Riverdale doesn’t believe that is how business should be conducted. Instead, as part of the loan process, each borrower is provided with two invoices for the cost of the appraisal and BPO. The intent is to make the borrower fully aware of where all funds are being spent and not require any money to be used that does not have to be. Moreover, at Riverdale Funding, there are no loan pre-payment penalties, additional out-of-pocket fees, and every borrower receives a breakdown of all closing costs.
So, do your research and read the fine print! When it comes to choosing a lender for your commercial mortgage, don’t fall victim to hidden fees.
Call and speak with one of the Riverdale Funding account executives and let them walk you through the complete loan process – no strings attached.