How many points should I pay on a hard money loan

Question

We are still looking at buying our first fix n flip.  Hard Money is the only way we can finance a loan. They are typically offering 13% then want either 4 pts at closing or 6 pts at sell. We thought the points were in relation to poor credit and lower interest rates. Low interest higher pts? and vice versa..Is it fair for a HML to ask 13% + 6pts at sale when we have a credit score of 700+?

On a side note as it's a sellers market here in Fort Worth, our buyer  agent says we'll have to pay half of closing. Is this acceptable?

we are still learning and dont want to be sitting at closing with massive fees and then when we sell we owe double commission fees too. That does not leave much room for our own profit.

Victoria Winters · Answer

@Sheri H.

Hi Sheri,

In response to your question, "how many points should I pay on a hard money loan?", my answer is as few as possible. The posts you received are all correct in terms of what you can expect to pay for a hard money loan. True, the better the deal, the less risk to the lender, but the points are going to be substantial. That is inherent in the hard money loan business.

Through continued learning and taking action on what you learn will get you to your real estate goal. This is a continuous process and it is fun, challenging and rewarding.  keep at this with the persistance of a mighty storm. Even the biggest storms start small and build in momentum.

Neil Aggarwal · Answer

I second that.  Mike is a great guy and offers a great program.

Mark Lopez · Answer

Check out Investmark Mortgage, Mike Hanna has a good product. Used him last year, excellent customer relations!

Neil Aggarwal · Answer

I have found there is a wide range of points and fees for private money.  Talk to everyone you know and keep looking around until you find a deal you are happy with.

Ben Stoodley · Answer

Hi @Sheri H.

First, you are doing the right thing by shopping around and asking the network on here! As people have mentioned, every deal and every lender is different. As you get some preliminary quotes, you will start to see some common ground on what is an acceptable interest and origination charge on HML. Being a lender in CA, NV, AZ and TX, these rates seem a little high to me.

Points are determined in part due to the riskiness of the project, but also the term, LTV and experience of the borrower (all also consideration for overall risk). I would think that your loan should be closer to 3 points.

First time flippers that lack experience aren't a huge risk, in my eyes. With all HMLs, the security is in the deal itself. So if you are finding great deals with large margins and clear exit strategies that are supported by numerous strong comps, the rates shouldn't be increased due to experience alone.

The interest is on the high end as well. Maybe that's normal for local TX lenders, we never charge over 12% no matter the deal.

In addition to interest and points, there are numerous other ways HMLs will charge unnecessary fees. These are commonly referred to as junk fees. Be sure to clearly ask what the "other" fees or "junk" fees are associated with each lender. This is anything in addition to the origination points and interest. For example, we have a $600 doc fee, and that's it. There may be processing fees, draw fees, fund control fees, appraisal fees, underwriting fees, etc.

Prepayment Penalties are also very important to consider... there shouldn't be a prepayment penalty. After all, HML offer short term loans and want money back sooner, so it is pretty contracting to charge such fees.

Lastly, find a lender that wants to work with you on the long term basis. Your lender should be viewed as your financial partner and be giving you good advice and want to keep you as a partner for the long haul. Rates/terms should become more flexible over time. Once again, every deal is different, but your lender should want to work with you to build a long lasting relationship.

Hope that helps. Best of luck!

-Ben Stoodley

Jimmy Moncrief · Answer

@Sheri H. hard money loans can be a tremendous resource for you.  However, please be extremely judicious in using them.

The vast majority of my customers who have used hard money loans get away from them, because virtually all of the profit in the deal is mitigated with interest and fees from hard money lenders.

I believe @jscott is involved with a flip financing company now.  I would highly recommend them to you.

Rolanda Eldridge · Answer

HML best for short term 1 yr or less, so if you're making $$$ don't get overly concerned with it.  Of course,  compare and find best rates and term..availability of cash matters for great deals..

Andy Mirza · Answer

@Sheri H. Wow! Those numbers are higher than my market. 10%-12% and 2 points is about normal for my area. Continue to shop around and get recommendations from any rehabbers you know. Do you know any private money lenders? They typically will loan money for less than the going HML rates. Good luck!

Brent Cullipher · Answer

All the rates and points listed above look too high.  6 points is ridiculous.  Maybe if I didn't need to come to the table with down payment, closing costs, etc and they ate everything initially.

Jerry Puckett · Answer

It's late and I can't look him up from where I'm at, but I think you guys need to be talking to Cary Donham. His experience putting together hard money deals with various lenders will more than make up for your lack.

Ping or pm me tomorrow and I'll get you his contact info.

Hard money is just that, hard. But your credit score matters less than the quality of the deal. If you default, they usually don't ding your credit....just take the house.

So find yourself a good off market deal and knock it out of the park!

How many points should I pay on a hard money loan

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