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Origination Fee (Points) for Private & Hard Money Loans Explained - YouTube
Channel: Private Lender Link
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if you get financing for an investment
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property from a private or hard money
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lending company you will be charged an
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origination fee also known as points
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in this video i'll explain what
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origination fees are the typical fee
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charged by most lenders one scenario to
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avoid it and how to find out the
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approximate origination fee when
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searching for a lender
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i'm rocky bhitani ceo of
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privatelenderlink.com where investors
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and brokers can easily find direct
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private hard money lending companies if
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you're in the investment real estate
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business and want to gain insights into
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private mortgage lending subscribe to
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our channel and get notified every time
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we release a new video
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the origination fee in a private
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mortgage or hard money loan transaction
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is a percentage of the loan amount which
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the lender charges just for originating
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the loan origination includes sourcing
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the deal underwriting processing and all
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the other work involved in funding alone
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the origination fee is a profit for the
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lender and without it they wouldn't be
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in business
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origination fees are more commonly known
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as points this is the term that most
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brokers and lenders use in conversations
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and advertising the term origination fee
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is more formal and typically only
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mentioned on the term sheet or the loan
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documents or the settlement statement
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you won't hear a lender saying we charge
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an origination fee of 2.5 percent of the
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loan amount instead they will likely say
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we charge two and a half points
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in commercial real estate deals a lot of
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lenders and brokers use the term basis
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points which is just a different way of
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stating the percentage so an origination
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fee of two and a half points may be
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stated as 250 basis points or 250 bips
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for short
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in the rest of this video i'll use the
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term origination fee and points
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just note that it's the same thing
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so what are the typical origination fees
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charged for private mortgages
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in general it ranges from one to four
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points and it can vary based on a number
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of factors including the loan amount the
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loan type the property type location and
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the borrower's financial situation
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the majority of lenders charge between
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two and three points
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you may find some lenders that charge
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one to one and a half points but this is
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not common
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to get less than two points from a
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private lending company it would have to
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be a very large loan amount or very low
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loan to value or you may get this
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pricing if you're a mortgage broker
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working with a lender that offers a
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wholesale pricing program
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on the high side of the spectrum you may
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find some lenders charging up to four
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points because of a low loan amount or
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if the loan has a higher risk profile
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which many other lenders won't consider
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some examples of this include a rehab
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loan with very high leverage land loans
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a second mortgage a rural location or a
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unique property type if a lender doesn't
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have a lot of competition for the type
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of loan they're seeking they may charge
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a higher origination fee just because
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they can
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there may be some cases where a lender
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would charge up to 10 points on a loan
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but that's only when the loan amount is
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less than 50 000 dollars
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and speaking of small loan amounts there
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are not many private lending companies
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out there that will lend less than fifty
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thousand dollars but we do have a
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handful listed on our website
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for residential investment properties
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most of the lenders in our network have
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a minimum loan amount of one hundred
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thousand dollars
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now what if you're working with a
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mortgage broker and not directly with
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the lender
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mortgage brokers also charge an
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origination fee as with lenders the
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broker's fee may vary based on the loan
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amount but in general most brokers
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charge one or two points for private and
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hard money loans
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the broker's origination fee may also
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depend on how many points the lender is
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charging
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if a lender charges two points the
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broker will typically be limited to
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charging one or two points
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most lenders don't allow the broker to
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charge more points than they do it
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typically has to be less or the same
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i've seen some lenders have the policy
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to cap the total number of points that a
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borrower would pay and those lenders may
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be flexible with their points to make
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sure the broker also gets a fair amount
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there are some cases where the broker
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charges points and the lender doesn't
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charge any points at all you typically
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only see this happen when the lender is
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a high net worth investor or a family
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office investment firm that doesn't
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participate in the origination process
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because they are not qualified to or
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because they don't have a license and
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are not permitted by law to charge an
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origination fee
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if you are adamant about not paying any
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points you may be able to negotiate with
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the lender to eliminate the origination
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fee and get charged at a higher interest
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rate instead
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for example if a lender quotes eight
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percent plus two points you can ask for
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11
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and zero points
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this would only make sense if you're
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positive that the loan will be paid off
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in a short period of time but it also
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has to make sense for the lender and
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there would likely be a minimum interest
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guarantee
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only a small percentage of private
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lending companies may consider this
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before you ask for this run the numbers
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to confirm that it makes sense for your
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deal
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there is so much detail i can go into
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about all the fees that lenders charge
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and various ways to structure deals and
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i plan to make additional videos to
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cover that in the future however i want
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to mention one thing regarding fee
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structures the lender charging the
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lowest number of points
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may not be the lowest price loan you
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have to review all the other fees that a
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lender charges in addition to the
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origination fee
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i'll give you an example let's say you
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want to borrow two hundred thousand
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dollars and you receive quotes from two
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lenders
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lender a is charging two points but they
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also charge an underwriting fee of one
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thousand dollars
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processing fee of five hundred dollars
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and a loan documents fee of five hundred
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dollars
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that amounts to six thousand dollars in
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fees
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the other quote from lender b is three
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points for origination and no other
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in-house fees that also amounts to six
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thousand dollars so both lenders are
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charging the same amount of fees but
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structured in a different way
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the point i'm making is you shouldn't
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write off a lender just because their
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points are higher than other lenders you
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have to dig a little deeper and look at
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all the other fees the lender is
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charging
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if you're looking for a private or hard
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money lender use our website
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privatelenderlink.com as a resource
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there's no fee to search and you'll find
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a lot of details about each lender
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including the points they charge for all
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lenders that provide investment property
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loans we require them to state their
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minimum and maximum origination fee
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you'll see this in the search results
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and close to the top of the lender's
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profile
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if you found the content in this video
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to be useful please click the like
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button and be sure to check out our
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other videos about private and hard
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money lending thank you for watching and
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see you in the next video
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