Hard Money Lender upfront fees

[Brendan D.]

Are there any hard money lenders out there who don't charge points up front? Seems like the points would be subtracted from the loan amount, but a few lenders in my area (DC metro)
want me to bring the points to closing and that's throwing off my estimates on the amount of capital needed to do a rehab.

[Jon Holdman]

HMLs are all over the map in terms of exactly how they work, so its hard to say what's typical. The one I work with will establish the maximum loan amount based on their max LTV (70%) and the ARV their appraiser determines. That ARV considers the work you're going to do. You provide the rehab budget. You will pay for the appraisal out of pocket, usually directly to the appraiser. That's done before closing. You would also pay any other fees, such as inspections, furnace certifications, or dewinterization fees.

At closing, the rehab budget would be returned back to the lender. The points would be subtracted out. If the net from the loan is less that the purchase price plus any closing costs, then you will need to bring some cash to closing. You would do the work, get it inspected and then get draws out of the rehab escrow. If you were to spend more than you budget, you would have to pay that out of pocket. If you come in under budget, but still do all the agreed-upon work, you would still get the entire rehab budget. You're not going to the the last chunk of the rehab budget until you actually complete all the work.

Some lenders require a down payment on your part. Say they want 10% of the purchase price plus 10% of the rehab budget. You would be expected to bring those to closing, too.

For example, say your lender will do 70% LTV, 4 points, but requires 10% of puchase plus rehab down. You find a property with an ARV of $100K. You can buy it for $50K and fix it for $10K. So, the maximum loan is $70K. However, with the down payment requirements, you have to bring $6K to closing no matter what. You would have the points of $2560 and the rehab budget of $10K that come off the top, too. The lender may allow you to roll in closing costs, say of $2000. So, you maximum loan is going to be $50K purchase plus $10K rehab plus $2K closing less the $6K down payment. That's $56K. At closing, the points and rehab budget would be held back, leaving net loan proceeds of 43,440. To close you need total cash of $50K for the purchase plus $2K for the closing costs for a total of $52K. Subtract off the $43,440 from the loan and you need to bring $8,560. That's the $6K down payment and the $2560 in points.