1st Time Using Hard Money

[Montez Greer]

Good Morning BP Universe,

Yesterday I came across a property on my local (Cincinnati) REIA website. The seller said in order to walkthrough the property, I had to have "Proof of funds". So I called around to a few Hard Money Lenders, and I was accepted by "Ground Floor". The lady I spoke to was really nice but there was a few things she told me that I didn't quite understand. I asked for clarification, but I still couldn't wrap my head around it.

1. She mentioned they have a $200 Withdrawal (Draw?) fee. She said in order for them to give me the money, I have to tell them exactly what was done on the house. Then they will send someone out to make sure progress is being made on the property. Then they will reimburse me for the money that was spent. What I don't understand is, where am I supposed to get the money in the first place in order for them to pay me back? 

2. They said they don't charge any points, they only have a flat interest rate. I understand what interest rates are, but what are points?

3. They charge a $1500 closing cost. $250 of that is for the Loan Application Fee, and then the remaining $1250 will be due at closing. Is this normal for Hard Money Lenders to ask for these? I understand I have to pay them back the money I borrowed, plus the interest rate. Why do I also have to pay a closing cost?

Thank you all in advance for any advice you can provide. 

[Aaron K.]

@Montez Greer

1. They probably aren't financing 100% so they expect you to use your down payment.

2. Points are a loan origination fee that are 1% each.

3. The closing costs are the cost to service the loan if you find a loan without them you should open a unicorn farm.