Is it normal for hard money lenders to charge points up front?

Question

I am talking to a few different hard money lenders to close on some properties that we will be doing a BRRRR on, and one of them is offering very attractive terms with 100% financing of both the purchase price and rehab budget. It seems a little bit too good to be true and now it seems my suspicions are being confirmed as they are asking me to pay their 2 points up front instead of using a title company to close. Is this abnormal for a hard money lender to ask this?

Jeff S. · Answer

Up-front fees are the biggest red flag in lending.  There is absolutely no reason a legitimate lender can’t settle everything thru title when your deal closes, @Brennen McConnell.

The only exception might be for a credit check, which maybe costs $35, and for an appraisal.  If you must pay for an appraisal, this should go directly to the appraiser, not to the lender.  Not all private/hard money lenders require these.

Some lenders additionally expect you to pay an application fee.  This is is an extremely competitive business.  You should easily be able to find lenders who don’t but if you can’t, these should be very nominal.  Large commercial deals could be an exception.

Stay off the web when looking for money, Brennen, if that’s what you are doing.  There are just too many scammers out there and it’s very hard to tell who is who or even whose website is legit. Real estate clubs are your best and safest bet for finding money.

Jay Hinrichs · Answer

your being scammed.. no one does 100% pp and 100% rehab . unless they are very well known to you personally.

also points up front you send them you will never hear from them again total scammers.

Kyle J. · Answer

Brennen - Just looking at this company's website one should be suspicious.  In two different attempts, they couldn't even spell "Corporate" correctly (see screenshots below).  Usually when spelling is that bad, it's indicative of someone operating from out of the country where English isn't their first language and they set up these "front" websites to collect fees, hoping people won't look that closely.

Brennen McConnell · Answer

@Jeff S. Very helpful feedback. Thank you. They were asking to pay 2 points up front and did not want to close through a title company. This helps confirm what I suspected as it was different than what all the other lenders I had been speaking to were requesting. Here is the alleged spammer for others to avoid: B.T.S. Investment LLC https://btsinvestmentllc.com/ . They may also reach out to you through LinkedIn profile for a George Mark which I suspect is fake: https://www.linkedin.com/in/george-mark-49536a199/

Joel Owens · Answer

Investors need to stop looking for unicorn financing.

The scammers prey upon those looking for some magical loans out there. They intentionally set fee schedules low just enough to entice people to roll the dice and hope they land the 1 in a million magical lender.

Hard money lenders are often retired active investors. They are not going to loan out at 100% and then just have 2 points typically. Some keep the points for themselves and pay their passive investors funding the loans the interest rate spreads.

On the commercial real estate side any investor that approaches me with some non-normal off the wall type financing I do not even start working with them. Vanilla loans and closings. That is what many lenders and brokers like. You get a consistent pleasing taste almost every time. If you try a weird flavor most times you do not like it and sometimes it tastes horrible.

You need to get realistic and build a business plan on actual hard money loan rates that are customary for the market you want to invest in.

Good luck

Gabriel Kolendrekaj · Answer

@Brennen McConnell

Do not pay anything upfront besides appraisal fee, and attorney fee and even that pay directly to the appraiser, and for attorney fee wait until after the appraisal. Think about it, what possible reason would they have to charge you 2 points upfront? It costs them nothing to put your paperwork in, any company that can’t wait for their points to be paid at the closing table is someone you should run far away from. I don’t need to know who the company is and I don’t care what their reviews are like. Never pay any fees upfront besides those two things I mentioned above and even then make sure. Ask for the attorneys name do your own follow up.

Also 100% of purchase and construction....sometimes dreams are to good to be real. And I promise you this is one of those times.

Brennen McConnell · Answer

Thank you @Joel Owens . We were never planning on using 100% financing but then the offer was made to us and we pursued it until this point when it became evident they are scammers. Luckily we didn't pay the lender any of their fees so this was a very valuable learning experience instead.

Brennen McConnell · Answer

@Odie Ayaga @Jay Hinrichs Thank you both! This is my first time using hard money so glad to have avoided a potentially nasty scenario.

Odie Ayaga · Answer

As @Jeff S. stated there are some reputable lenders who will charge a nominal application fee, but points should only be paid at closing. I wouldn't trust this company unless you know someone who has successfully worked with them or have some other good reason to believe they're legit.

Jay Hinrichs · Answer

Also TN is one state that requires a specific license for any kind of mortgage lending no matter if its owner occ or not.

Is it normal for hard money lenders to charge points up front?

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