$500 Application fee on loan?

[Jonathan Lee]

Hi all, first post after scrolling through for months. I have an offer through a broker from a construction lender on a 2 family gut renovation in Boston that I'm looking at. Not sure if this is truly "hard money" or what, but no income requirement. They are looking at the project itself, my experience, credit, and cash reserves. The offer looks good so I went to get fully approved, and the broker told me that there is a $500 application fee. Is this normal?

I have always just done conventional bank financing and portfolio loans, so was surprised by this fee. If normal, no problem, but didn't want to be walking into something sketchy. I'll lose the fee if I don't get approved from what I understand. I've never worked with this broker before, met him at a RE meetup, though another broker I was connected with knew him. 

Thanks!

JL

[Chris Mason]

Originally posted by @Jonathan Lee:

Hi all, first post after scrolling through for months. I have an offer through a broker from a construction lender on a 2 family gut renovation in Boston that I'm looking at. Not sure if this is truly "hard money" or what, but no income requirement. They are looking at the project itself, my experience, credit, and cash reserves. The offer looks good so I went to get fully approved, and the broker told me that there is a $500 application fee. Is this normal?

I have always just done conventional bank financing and portfolio loans, so was surprised by this fee. If normal, no problem, but didn't want to be walking into something sketchy. I'll lose the fee if I don't get approved from what I understand. I've never worked with this broker before, met him at a RE meetup, though another broker I was connected with knew him. 

Thanks!

JL

 Generally speaking an upfront fee measured in 1% or more of the purchase price or loan amount is a flag for a scam.

But $500 looks like an appraisal fee. And/or someone would have to do a LOT of scamming for it to be worth it at $500 a pop.

Because it's so small, small enough that it looks like an appraisal fee and/or "confirm you aren't wasting my time" fee (rather than being a large "I'm trying to scam you" non-fee), and if there's an online presence indicating folks have done business with them and/or you know people that have, I'm going to say you're probably safe in this case.