We receive several dozen hard money loan inquiries each week and nearly 100% of the time the first question we’re asked is, “What are the costs of a hard money loan?” And then it goes to, “How many points? Are there any other fees? What’s the interest rate of the hard money loan? Is there a prepayment penalty?”
If someone isn’t asking about price/costs/points/fees/rates/prepayment penalties on a hard money loan, or doesn’t have a slight degree of sticker shock, then it leads us to believe that something’s up.
For example, another mortgage broker has sent us a few inflated sales price transactions with undisclosed silent second trust deeds to buyers with zero down payment that are essentially 100% financing hard money loan requests in disguise. The borrowers were way too eager and didn’t say a thing about the costs of the loan, which tipped us off that something was fishy.
Most non-duplicitous prospective hard money borrowers want to know what the upfront costs will be along with the monthly payments and any potential prepayment penalties. That’s normal.
Surprisingly, many of the private money lenders and fund managers we work with tell us that about 60% of the final loan docs they send out on mortgage broker-originated loans don’t get signed. The belief that most mortgage brokers don’t go over the costs/fees/rates of the loan with borrowers and so when the loan docs arrive at escrow, the borrowers are surprised by the terms of the loan and refuse to sign.
From our point of view, we know that a hard money loan is a borrower’s last resort for financing after usually being turned down by a few traditional lenders, whether it be on a jumbo loan or conventional loan. So there’s always going to be that initial sticker shock of the upfront costs of 2-3 points, higher interest rates (7.00% to 12.00%), and a balloon payment due in 12, 24, or 36 months.
By discussing hard money pricing and terms at the very beginning, we ensure that borrowers have all their questions answered which makes it easier for them to proceed with the loan.