When taking out a hard money loan, borrowers should be aware of the various fees involved. These costs cover everything from loan origination to legal and administrative expenses. Note all fees are subject to change without notice.
1. Origination Fee
- Purpose: Charged for processing the loan application and setting up the loan.
- Typical Cost: 2% - 2.5% of the loan amount.
- Example: $5,000 - $6,250 on a $250,000 loan.
2. Title Search
- Purpose: Covers the cost of verifying property ownership and ensuring there are no existing liens or claims.
- Typical Cost: Around $100.
3. Credit Report Fee
- Purpose: The cost for obtaining a credit report for each borrower, used to assess creditworthiness.
- Typical Cost: Approximately $50 per borrower.
4. Appraisal Fee
- Purpose: For property appraisal, providing an accurate valuation of the property being used as collateral.
- Typical Cost: $600 - $2,500, depending on the property type and location.
5. Legal Fees
There are multiple legal fees involved in a hard money loan, which may vary based on the loan size and complexity:
- Borrower’s Legal Fees: Covers the borrower’s legal costs for loan documentation and review.
- Typical Cost: $500 - $1,100.
- Lender’s Legal Fees: Covers the lender's legal expenses in preparing loan documents.
- Typical Cost: $500 - $1,100.
- Disbursements: Additional legal expenses related to processing and documenting the loan.
- Typical Cost: Around $525.
6. Title Insurance
- Purpose: Provides insurance coverage to protect the lender’s interest in the property in case of title defects or issues.
- Typical Cost: Approximately $535.
7. Monthly Interest Rate
- Purpose: Hard money loans usually have higher interest rates than traditional loans due to their short-term nature and higher risk.
- Typical Cost: Typically ranges from 8% to 15% annually, depending on the loan’s specifics and borrower’s profile.
- Example Monthly Cost: $1,667 - $3,125 on a $250,000 loan balance.
8. Legal Discharge Fee
- Purpose: Covers the cost of discharging the loan after repayment.
- Typical Cost: $600 - $1,000.
9. Administrative Fee
- Purpose: Charged for administrative tasks related to loan discharge.
- Typical Cost: Around $75.
10. Banking Fees
- Purpose: Covers fees for processing loan disbursements and other banking transactions, such as wire transfers.
- Typical Cost: Around $50 for wire transfers.
11. NSF (Non-Sufficient Funds) Fees
- Purpose: Charged if a payment is missed due to insufficient funds in the borrower’s account.
- Typical Cost: Around $100.
Summary of Typical Hard Money Loan Fees
| Fee | Description | Typical Cost Range |
|---|---|---|
| Origination Fee | Processing and setting up the loan | 2% - 2.5% of loan amount |
| Title Search | Verifying property ownership | Around $100 |
| Credit Report Fee | Credit check for each borrower | $50 per borrower |
| Appraisal Fee | Property valuation | $600 - $2,500 |
| Legal Fees - Borrower | Borrower’s legal costs | $500 - $1,100 |
| Legal Fees - Lender | Lender’s legal costs | $500 - $1,100 |
| Legal Fees - Disbursements | Additional legal costs | Around $525 |
| Title Insurance | Insurance to protect lender’s interest | Around $535 |
| Monthly Interest Rate | Annual rate, paid monthly | 8% - 15% |
| Legal Discharge Fee | Legal cost for loan discharge | $600 - $1,000 |
| Administrative Fee | Fee for loan discharge administration | Around $75 |
| Banking Fees | Transactional fees, such as wire transfers | Around $50 |
| NSF Fees | Fee for missed payments due to insufficient funds | Around $100 |
These estimates provide a general idea of the costs involved with hard money loans, although specific fees may vary depending on the lender and loan structure. Borrowers should review all fees closely to understand the full cost of borrowing.