Under contract with Hard Money, Please help!

[Daniel Rutledge]

I have a deal under contract and quickly pulled the trigger with a hard money lender to get it fast. Now I am a little concerned with some things written pertaining to the hard money loan. Here is the list given to me:

Specification for mortgage and note:

1. Maintain insurance and provide proof of insurance showing mortgagee as additional insured prior to closing.
2. Late fee of $50 of any payment received after the 10th of the month.
3. Payments due on the first of each month.
4. Any unpaid interest will be added to the principal amount and bear interest at the same rate.
5. Borrower to pay any attorney’s fees or costs of collection
6. Borrower to provide mortgagee title insurance guaranteeing a valid first mortgage
7. Borrower to pay all closing costs including preparation of note and mortgage
8. Borrower to pay attorney fees and title fees for closing
9. 12% Interest only for 3 years paid monthly then balloon payment
10. $1,000 pre-payment penalty if paid off in part or in full within the first 12 months
11. $500 pre-payment penalty if paid off in part or in full within the second 12 months
12. Personal guarantee from the individual involved
13. Interim interest for the month of closing
14. No origination fee
15. No points
16. No appraisal fee
17. No credit report
18. No substitution of collateral without my consent.
19. Interest due through the end of month of pay off
20. Mortgagor will have the option to extend the note on a month to month basis subject to consent of mortgagee
21. Collect interim interest for the month of closing
22. First payment due June 1, 2018
23. This will be a purchase money mortgage so you will need to close the sale for the buyer and seller

Couple of questions for the experts. #4 does this mean I will owe the total interest of the 3 year loan even if I plan to refinance it at the 6 month mark? If not, what does it mean? #7 Does this mean I am to pay ALL closing cost including what is normally paid for by the seller? #12 does this mean this loan will show on my credit report and impact (drastically) my DTI?

I am really hoping I can get some feedback from the experts here. Thanks

[Nghi Le]

Most of these terms seem pretty standard, but some are unusual for a HML, such as the 3-yr term, no points, no appraisal, no credit. In some ways, it sounds like a hard money loan from an individual as opposed to an institutional HML.

I think #4 refers to late payments, or simply payments that were never made?  But I don't think you will owe interest for the entire 3 years if you pay off early.  #10-11 describes the prepayment penalties.

#7 still refers to your side of the closing costs.  There's no mention of the seller here.  The cost for the note and mortgage shouldn't be much.  My escrow company drafts those documents for me for free.

For #12, typically HMLs do not report to credit.  The personal guarantee does allow them to pierce your entity protection and go after you personally, and they can hurt your credit.  But this is only if you don't pay back the loan.