Want to know which hard money fees are common, and which aren’t so common? You’ve come to the right place. We’re going to look at the hard money fees you can expect to see when you take out a loan, as well as some that might surprise you.
If you use hard money loans or are thinking about using a hard money loan, you probably know that they are more expensive than traditional loans.
This is due, in large part, to the rates.
Interest rates are higher on hard money because these loans are typically funded by individual investors and are meant to be used in the short term. If you’re not careful, however, you could end up paying a lot in fees as well.
Here, in part one of two, we’ll look at some of the more common hard money fees – ones that you’re likely to see no matter where you go for funding.
In the next article, we’ll look at hard money fees that aren’t as common, that can sneak up on you and cost you a lot more money than you might realize.
The most common hard money fees, the ones you’ll see on just about every hard money loan you take out, are the doc fee, draw fee, extension fee, and origination fee. Keep your eyes peeled for the other fees, as they’ll add up quickly.
Common hard money loan fees:
- Doc/processing fee
- Draw fee
- Extension Fee
- Origination fee
The term “doc fee” or “processing fee” typically refers to the document preparation fee. This fee typically covers the cost of processing the loan and documents – basically all the work your lender does in order to get your loan finalized.
Loan Ranger’s doc fees are $595.
Draw fees are charged when a borrower takes a “draw” on the funds that have been held back to cover the construction work throughout the course of the loan.
The draw fee covers the cost of transferring/wiring draws and the inspections for the property. These fees vary based on your lender and their banker/inspectors but typically stay in the $125-$150 range.
Loan Ranger’s draw fees are $125.
Extension fees only come into play if your loan need exceeds the original loan term and so should never be charged up front.
Not every HML will mention extensions or extension fees so it’s a good idea to do your due diligence and ask them what their extension process looks like. Some lenders don’t offer extensions period, while others offer them conditionally.
It’s especially important to know what your lender offers in terms of extensions when you’re first starting out flipping building houses. It can be hard to gauge how long something will take if you have no experience with it.
Loan Ranger offers extensions for up-to-date loans and our extension fees are dependent on the project. We often don’t charge a fee at all!
The origination fee, sometimes called “points” or just the “fee” is paid to your lender (and broker if you use one). Each point equals 1% of the total cost of your loan. This is your lender’s fee. It’s common to see these fees vary between 2 and 5.
Loan Ranger’s origination fees vary between 2-3 points, depending on the project.
However, it’s important not to confuse the origination fee with the rate.
Just to recap from an earlier post, your rate refers to your monthly interest rate. This is how much you pay in interest each month for your loan.
It’s the cost of borrowing money. And it’s paid monthly to your lender, who, in turn, pay their investors. It is how hard money loans can exist – and thank goodness for that!
Well, there you have it — the four most common fees you’re likely to see during any hard money loan.
Stayed tuned as we dive into some less common hard money fees that you must watch out for – or else they’ll sneak up on you!