Hard money loans have higher origination fees than traditional loans since they are considered to be higher-risk loans. You may also be required to pay points up front, meaning a percentage of the total loan amount.
Borrowers should be aware of hard money loan fees before taking out short-term financing:
- Origination fees are charged by the lender at the time of loan origination and range from 2-5% of the total loan amount.
- Also, hard money lenders require borrowers to pay points, upfront fees that cover the costs of servicing the loan. Points are equal to 1% of the loan amount and are paid at closing.
- Hard money loans usually carry higher interest rates than traditional loans ranging from 10-15%.
While the cost of a hard money loan may seem high, when used wisely, hard money loans can be a powerful tool for real estate investors.