I'm not sure about California but those fees aren't out of the ordinary here. 

1 Rate is whatever you both agree to over the ire of the loan, her accountant will report the interest as ordinary income to her (bonus, if she has a self directed Ira this could be used to fund the loan)2have the closing attorney draw up the docs…protect both sides legally.

Treated as ordinary loss another great perk of real estate  ....

@Abhi Patel - You can deduct up to $25,000 in passive losses (Rentals) against your ordinary income (W-2) and other active business income if your modified adjusted gross income (MAGI) is $100,000 or less.This deduction phases out $1 for every $2 of MAGI above $100,000 until $150,000 when it is completely phased out.

And withdrawals from your 401k are taxed at ordinary rates.I would think about converting to Roth now as taxes rates are extremely low.

Two recent examples:Purchased a SFH student rental for 85k that was mis-labeled as a 3-br (it had 4) and was only getting 900/month in rent, appraisal came back well and instead of bank doing a construction loan they lowered my down payment to 10k and had me self-fund the rehab. 

Maybe it's not how you were, although the Brits I know are used to cloudy skies and expect the occasional bombs to fall out of them.

Originally posted by @Brit F.

From my research it sounds like people are split between thinking it is Ordinary Income vs.

First is that the tax benefits only apply to capital gains, you can receive any benefits on ordinary income.