Purchasing or refinancing a property requires a lot of time and effort from both the borrower and the lender.
Closing costs are paid to the lender. They compensate the lending company for their time in originating, underwriting, and funding the deal.
Hard money lenders spend hours researching a property, coordinating with appraisers, and working with underwriters to certify origination documents for final mortgage approval.
While there are common closing costs associated with any type of mortgage, hard money mortgages work differently. They may have different fees factored into their final closing costs.
If you’ve considered a hard money loan to fund your next real estate project, continue reading. Learn about the common closing costs associated with private money loans.
Common Hard Money Closing Costs
Private Lenders (aka hard money lenders) like Marquee Funding Group arrange real estate loans by raising money with private investors.
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Unlike traditional lenders who have access to institutional buckets of money with strict lending criteria, hard money lenders are essentially acting as brokers. They arrange unique loan transactions that traditional lenders can’t do. For this reason, hard money lender closing costs are more similar to real estate brokerage costs.
Closing costs pay the lender’s employees’ wages and cover the costs of required inspections and certifications during the mortgage process.
In total, closing costs usually account for 2% to 5% of the loan amount and are typically paid through the loan proceeds at the close of the loan transaction added as additional fees at the end of the transaction.
Below are the most common hard money closing costs:
Origination Fee:
The origination fee is the fee earned by the company that is arranging your loan, taking the loan application, underwriting the transaction, placing the loan directly with the investor, and closing the loan.
Origination fees are sometimes referred to as points. Hard money loans traditionally have a higher origination fee than convention loans because their loans involve more risk.
Underwriting Fee:
Hard money owner-occupied loans are secured by real property, using the property as a source of collateral in the case of borrower default.
In order to secure the collateral property and create a deal, an underwriter must work out a legally binding agreement between the borrower and lender. This is often called the “underwriting fee” in the total closing costs. Many times the underwriting fee is also built into the origination fee.
Processing Fee
Most lenders have a processing team that handles document preparation and delivery of items to escrows or title companies to property record loan transactions. Processors make sure that all paperwork needed to close a loan is correct and executed properly.
Marquee Funding Group has an in-house processing team that charges a nominal fee for document preparation and delivery.
Property Insurance:
You cannot purchase or refinance a property using a hard money loan without having some type of property insurance protection. For lenders, it simply wouldn’t make sense to loan a large amount of money for an unprotected asset.
Your hard money lender will require you to purchase a property insurance plan from your insurance company.
Appraisal or Valuation Fee:
The subject property must first be appraised to fully understand its value as collateral in making the deal. This fee pays for an appraiser to visit the property and inspect it.
Legal Fees:
On complicated loan transactions, many hard money agreements are reviewed by lawyers to ensure the deal is valid, legal, and complies with all laws and regulations. This fee pays for the lawyer’s time and expertise. Though, 90% of Marquee Funding Groups loans do not require attorney fees or attorney review.
Flood Certification:
Some private lenders may require a flood certification for properties located in flood zones to inform lenders and borrowers of flood risk.
Extension Fees:
Marquee Funding Group offers hard money loans with long term and short term options. Whereas a traditional mortgage might be for 30 years, a hard money loan might be for 12 months only.
For borrowers who need extra time to pay off their short-term loans, there can be extension fees that charge an additional cost for failure to pay the loan off by the maturity date.
Title and Escrow Fees:
Escrow fees are the closing fee paid to the private lender company for managing and insuring the transaction. This includes title search fees, and title settlement fees used to research ownership of the property, survey and notifying fees, and other associated title fees.
Documents Required for a Hard Money Loan Application
Private money lenders require far less information and aren’t bound by the same federal rules and regulations as traditional lenders.
Because of this, many people who face difficulties getting conventional mortgages or loans often find success working with private money lenders.
Hard money loans are also used by real estate investors and house-flippers as a quicker and easier way to get quick cash to fund their time-sensitive projects.
Traditional lenders and banks often require proof of income, debt history, job history, credit reports, rental history, and more. Hard money lenders are much more lenient and flexible with their documentation.
Because each loan case is different, a private money lender may ask for additional documentation later in the process. They want to determine if the deal makes sense for both parties.
How to Properly Submit a Successful Hard Money Loan Request
Private money lenders are different from banks in that they’re privately-owned companies funded by investor partners. This means they can fund projects that are deemed too “high risk” or complex by traditional lenders.
The first step in getting started securing your private money loan is submitting a loan scenario with Marquee Funding Group. Marquee Funding Group is the premier private lender in the industry and offers a wide variety of loan products that other private lenders simply can’t compete with.
The loan scenario is your chance to explain your unique situation to our investors to let us know how we can help. Let’s look at some example scenarios, inclduing:
- You’re a house flipper looking to buy a promising property that just went on sale
- A college graduate making a good living, but don’t have a long credit history
- Looking to purchase a multi-unit property to rent out
Tell us what you need help with, and send us the property’s address so we can begin your application process.
Be sure to accompany your summary with photos of the property, as well as required documentation and an executive summary.
For more information on submitting your loan scenario with Marquee, read our Ultimate Guide to Submitting a Hard Money Loan Request.
Submit Your Loan Scenario to Marquee Funding Group
Marquee Funding Group specializes in the origination, investment sale, and servicing of privately placed real estate loans commonly referred to as hard money loans.
Our company is located in Calabasas, California, and currently funds projects throughout California and Colorado.
Are you looking to purchase your next property through a hard money loan?
Submit your loan scenario today and we’ll review your case.
If the deal makes sense, we’ll work with you to get you the money you need to secure your next property. Have more questions?
Contact us and we’ll return your message as soon as we can.
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