What Is a Hard Money Loan?
Hard money loans, also known as private money loans, are most commonly 6-24 month bridge loans used by real estate...
One of the most common questions we receive are, “What are the closing costs of a hard money loan?” Everyone wants to know about costs on a loan and FCTD makes sure to discuss closing costs with borrowers.
Before we get into the actual numbers, I would like to point out that each hard money loan has different closing costs. There is not a “one size fits all” formula to hard money loans like there is for owner occupied consumer-purpose conventional loans. The reason that closing costs on hard money loans differ so much is that there are six primary sources of hard money financing (Mortgage Funds, Real Estate Offices that also originate hard money loans, Family Offices, High-Net-Worth Individuals, Fix and Flip Funds, Multiple Lender Loans sourced by mortgage brokers) as I wrote in this blog post last week. Conversely, owner occupied conventional loans all conform to the same standards imposed by government sponsored entities Fannie Mae and Freddie Mac, which wind up guaranteeing the loans for mortgage backed securities (MBS) investors. Fannie and Freddie’s guidelines, along with federal laws, dictate how closing costs can be structured on consumer-purpose residential mortgages. That’s why it’s so easy to go online and receive twenty different quotes for a home loan on your primary residence.
Business-purpose hard money loans do not have an end-user secondary market investor like Fannie Mae or Freddie Mac. Some loans will be sold off into the secondary market, but that is only about 10-20% of hard money loans. The rest of the hard money loans are held by the lender in their loan portfolio, which can be as small as one loan for an individual trust deed investor up to 500 loans for a large mortgage fund.
Below are the definitions of the closing costs that frequently appear on closing statements for hard money loans that FCTD originates:
Now that we know the definitions of the different hard money closing costs, lets put some numbers on paper to give you a good idea of what you might see when taking out a hard money loan. We’ll use a hypothetical $850,000 bridge loan amount because that has been FCTD’s most common loan type and FCTD’s average loan amount in 2018 through 2019.
In addition to hard money closing costs, borrowers can expect to pay the standard Title and Escrow charges when closing a loan.
The closing costs of a hard money loan will be different from loan to loan. First Capital Trust Deeds has closed 700+ loans during 2018-2019 and closing cost fee scenario was different since we used 50+ different lenders, from mortgage funds to individual trust deed investors, to fund our client’s loans. Each hard money lender had their own closing cost structure that FCTD provided to our borrower clients.
Hard money loans, also known as private money loans, are most commonly 6-24 month bridge loans used by real estate...
As acquisition prices for fixer upper properties continue to rise due to increased competition in local markets,...