Do all private lenders charge points?

Question

I was wondering if all private and HML in IL charge points?

Stan Hill · Answer

personally, I avoid HMLs if at all possible. High interest rates, ridiculous fees. The terms can make many deals not worth it, IMHO. One local HML charged me $30 per month loan servicing fee! Oh and they charged me interest on money before it was even filled out during the rehab process. Buyer beware!

Mary B. · Answer

hard money lenders aren't the exact same as private lenders. all HMLs do charge fees from points on the front end, on the back, interest ...whereas private lenders may only charge interest. you make out better if you can do business with a private lender rather than a HML.

Kudos,

Mary

Kudos,

Mary

David Weintraub · Answer

Goldman Sachs just purchased the largest originator of HMLs in the country, so it's certainly competitive.

Outfits like LendingHome will pretty much issue a loan to a pulse, but their default rate is pretty low right now.

But yes, competition breeds both better products, but that competition is also littered with companies who aren't necessarily the best at lending.

If your officer was dishonest to you that has little to do with HML in general, but rather everything to do with the individual.  There are dishonest people in every aspect of every business, including the man currently sitting in the White House.

Some lenders do charge on the total amount of the loan vs the initial loan for purchase and not the rehab until drawn.  It really depends on the size of the loan.  They'll charge you "full boat" if it's a small loan that won't beget them $4,000, or greater.  Because again, they have to make money on their dollar investment, and their time investment.  If the loan is of a higher value they're less likely to charge interest on escrowed dollars.  But that's up to the borrower to negotiate.  No one is giving away money in this business, or any other.  You included.

Stan Hill · Answer

It's been a few years, but I remember the company we dealt with charged an outrageous appraisal fee: $795. There were several other junk fees, 4 points, charging me interest on money not even drawn yet. 11.99% interest rate- eh, I can live with it. But the loan rep telling me it was going to be 9.99% and it ended up at 11.99% at closing? I wish I would have walked away.

Your question is well-taken and I appreciate your asking. It's always good to know what in the minds of people in your target market. Oh and I have another bias- we were able to get conventional loans on properties up until just recently, actually. We pushed the envelope on one particular duplex with repairs needed, but still got it done.

Also, I suspect the HML business is more competitive now than it was when we did this project- late 2014.

Calvin Douglass · Answer

@David Weintraub, all makes sense--thanks for the explanation.@Jay Hinrichs, thanks for the clarification on PML vs. HML--this makes perfect sense. By the way, show #222 is tied with show #197 as my favorite so far (I've listened to about ~100 of the BP podcasts). Thanks for being such an awesome contributor to this community!

Jay Hinrichs · Answer

@Calvin Douglass  depends on the state in some states ( about 12) you need to be licensed to lend on any 1 to 4 property regardless of purpose.

and in some states its illegal to charge points if your not a loan broker.  that's why you see some say.. PML don't charge points.. one it may be illegal and or they simply don't know they can or cannot.

PML is someone you know personally.. anyone on the net or any other kind of advertising is NOT a private money lender they are a HML just trying to market them selves as a PML as there is a perception the money is cheaper as indicated above in some of the responses.

for folks doing a deal or two a year PML can work.. anyone who is looking to scale will normally run PML out of money after a deal or two.. so really depends on what your trying to accomplish.

David Weintraub · Answer

@Calvin Douglass I think the issue is HMLs were charging considerably more a few years ago, and for new investors, or people who live in areas that have a long days on market, rates/fees are higher.  There's probably some sticker shocker when you think you probably need 20-25% of the loan amount in order to get loans.  Even if you're 10% down on a $100,000 loan, you're going to be in that area.

$70,000 purchase

$30,000 rehab

You're first time in you put down 15%, you're at $10,500.

Then lets say you're on the higher average side at 12% and 3 points, with no monthly minimum.

3 points puts you at $3,000

Lender will charge underwriting/processing, anywhere from $500-$1,500.  Call it $1,000.  Maybe at attorney fee of $1,000.

Then you have title insurance, and other insurances.  Call it another $2,000.  You could be paying your interest on the day of the loan for first month, that's another $1,000.

And finally, lenders are going to want to see you can do the work because rehab dollars are reimbursed.  They'll look to see that you have $3-4,000 in reserves.

So all told you're going to need over $20,000, be in for around the same.  You get your down payment monies back on sale.

I know borrowers who are getting their entire purchase monies AND getting $5-10K in rehab upfront.  Why?  Because they're amazing at what they do.  Become amazing, people will be knocking down your door to give you money.

Flip 2-3 houses a year?  Expect the lender to make $5-6k on your loan $100,000.  Because based on the above example, that's what they're making.

Tell me how/why they should do it for less?  You really can't.

David Weintraub · Answer

I hear ya, and I'm not defending it.  I wouldn't work in the field if it was something I felt needed to be defended.  I'm literally seeing people on a daily basis make lives for themselves through real estate, and it's because of lenders that it gets done.

If I had the option to not pay fees, and use private money, I'd do it all day.  I recommend the same for anyone else.  But short of that, I don't understand this idea that HML is somehow overcharging, or adding 'fees", etc.

What's fair?  What do they think a lender should make based on the risk?  I'm almost certain no one will provide an answer any different than what's actually charged.

Tom Gimer · Answer

@David Weintraub No need to defend your operation here. Most are happy to pay fees (including monthly servicing fees, if applicable) for loans that would otherwise never be funded.

David Weintraub · Answer

I'm not trying to be confrontational, but I am interested on what "ridiculous fees" are?  I want to get an idea of what borrowers think is a fair amount of money to pay to a lender per $100,000 loan.

I can only speak for us, but we end up charging points/interest, an attorney fee (we don't make a dime), and processing fee (which basically pays for all of the underwriting/employees).  It's pretty straightforward.  I'm just not sure what someone thinks is fair.

Do all private lenders charge points?

Most Popular Reply