Private Money lender - potential costs/fees?

Question

Hi All, We're considering our first private loan and have calculated our costs based on an initial conversation with the investor. Our question is, from initial agreement through closing, what costs may we incur outside of management fee and interest that are part of the terms? Ex. Attorney? Appreciate your insights.

Andrew Syrios · Answer

There will be some title fees (or attorney fees if you're closing with an attorney) but they'll usually be pretty modest. If you don't have a mortgage/deed of trust and note drawn up, you might have to pay a bit for that. And you might want a loan servicer. Overall though, if it's a private loan and not a hard money loan, other than the costs of the loan itself (interest rate, points, etc.) the costs should be pretty modest.

Chris Seveney · Answer

@Tasha Smith

Closing costs

Attorney fee to draft documents

Potential servicing fee

Points to the lender

Prepaid interest

Underwriting fee

Depends some lenders have a lot of junk fees, best to ask the lender for the fees upfront

Sean Richway · Answer

@Tasha Smith

I would keep an eye out for any upfront fees as I would be very cautious to pay those.  Typically the only fee a lender will ask for is an appraisal fee, that is typically paid directly to the AMC though not the lender.  As far as closing costs go, see below:-Title fees-Title insurance-Hazard Insurance-Lender's closing fee, underwriting fee, or any other flat fee they charge-Origination fee-Attorney fee (if the property is in an attorney state)-Doc fee for closing docs-Prepaid interest through the end of the month you are closing-Recording and transfer fees on title

That will cover most of your normal closing fees.  You may have some one offs if there are backdue water/sewer charges or back due real estate taxes as well.

Feroz Penangwala · Answer

Hi there! Great question! In addition to the management fee and interest, you may encounter several other costs when securing a private loan. Common expenses include:

• - Attorney Fees: Legal assistance for reviewing contracts and ensuring compliance can vary based on the complexity of your deal.
• - Title Insurance: Protects against potential disputes over property ownership.
• - Appraisal Fees: Necessary to determine the property’s market value.
• - Closing Costs: This can include various fees related to finalizing the loan, such as recording fees and settlement costs.
• Inspection Fees: If required, this ensures the property is in good condition before purchase.

It’s a good idea to discuss these potential costs with your lender upfront to get a clearer picture of what to expect. Good luck with your investment journey!

Jacqueline Wright · Answer

Tasha, congrats on considering your first private loan! Private money lending often comes with fewer restrictions compared to traditional lending, but there are still a few costs you might incur throughout the process.

Private lenders often charge points (1-3% of the loan amount) as an upfront fee. One point equals 1% of the loan amount, so on a $100,000 loan, 2 points would be $2,000.

Private Money lender - potential costs/fees?

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