You’ll be hard-pressed to find a hard money loan without points—they’re essentially the fee for getting fast cash from a private lender for your flip. They’re the lender’s way of making money for extending you their funds. Each point is the equivalent of 1% of your loan amount and, depending on your lender, you can expect to pay between 2-10 points per loan either up front or at closing.
How many points should you expect to pay?
The number of points any given hard money lender asks depends on a number of factors:
- Your past borrowing history with them
- Your credit score
- Your record of success as a flipper
- The interest rate of the loan
- Their standard operating model as lenders
- The percentage of ARV or LTV being financed
In addition, the size of the loan will impact the points. For example, a small loan of $50,000 might come with high points to cover the cost of setting up the loan, while a loan of $300,000 would typically require fewer points.
Important things to know about points for hard money loans:
Conventional mortgage loans are insured and regulated by the government, and there are many rules in place that mortgage lenders must observe. Hard money loans, on the other hand, are not insured by the government. Because hard money loans are essentially private agreements between two investors, the lenders have more leeway in shaping the terms. There are a few important things that borrowers should understand about points associated with their hard money real estate loans:
- Unexpected expenditures on your flip
- Purchasing other properties or investments
- Floating your loan longer if your property doesn’t sell quickly
- A bigger cash cushion in your bank account while you fix the propertY
Beware of shifting numbers.
As you grow more aware of the relationship between ARV ratios, points and interest rates, you’ll start to develop a better feel for the types of deals that feel right to you. However, there is one major caveat: the advertised numbers that drew you toward one lender can change before closing.
Your lenders vet you. You should do the same with potential lenders. At Residential Capital Partners, we’ve built our business on repeat business by offering fair, firm quotes, and holding to them through closing. When it comes to points, you will always pay only three points, rolled into your loan—no surprises or bait-and-switch.
Apply for a loan with transparent terms today.
With Residential Capital Partners, what you see is what you get. We offer three points, rolled into your loan every time. Apply today in just 14 minutes. We can move you through the approval process and help you close within just 14 days with absolutely no money down.
Why wait? Pre-qualify for a loan today in under 14 minutes at residentialcapitalpartners.com.