Typical Hard Money Fees (by category, not amount)

[Karin Crompton]

I'm looking for some info on what's considered typical vs what fees would be indicative of a bad lender - not the dollar amounts, just the categories, though if there are standard $$ ranges to be aware of, please say so. I'm looking to compile a checklist of sorts for myself to better facilitate the process (until I meet more private lenders and break up w/these HML's!).

I understand the basics: varying amounts of points, high interest rates, we have to put some of our own money down, the lender may or may not fund rehab costs.

We're talking to some HML's for an upcoming closing on a single-family rehab project to compare rates, terms, etc. The first one we spoke to sounded interested on the phone and wants to come to the house to "inspect" it. He's charging $425 for this.

What else should I be aware of? I've heard HML's sometimes find "problems" with the house so they can send people out for one inspection after another, charging each time. How many other fees and inspections are there going to be in addition to the regular terms?

Thanks for any input!

[Ann Bellamy]

Karin DiMauro, it is very common for HML's who operate locally to do their own evaluation of the property and not rely on appraisals, which can be manipulated. They do sometimes charge for this, so that they are not driving all over the place doing initial inspections, only to have the borrower go elsewhere. National companies must rely on appraisals, because they don't know the market. I don't agree with Sonja Tani that appraisals are necessary. Few true local HML's require them.

Be sure to ask around at CTREIA about the reputation of the lender you are considering, if he's local, he's probably well known.

Some other questions to ask:
1. Ask about what happens if you don't have the property sold when the balloon is due? Is there an extension process and/or fee?
2. Ask if there are any back end fees. Reputable lenders will disclose all fees upfront, but unfortunately, it is not uncommon in our industry for borrowers to find out that there are fees due at payoff that are not disclosed until the borrower is sitting at the closing table.
3. Ask if there are fees to do draw inspections. Frequently a lender will employ an inspection service, and there are fees for each inspection.

I'm not saying the above are always the case, just something to ask about. Don Konipol is correct about the code of ethics of AAPL. I'm also a member of American Assn of Private Lenders, but since the organization is fairly young, there are plenty of hard money lenders who are not members yet, so just because a lender is not a member, doesn't mean they aren't on the up and up.

Ask around.