November 26, 2018
High Standards and Low Fees for Real Estate Borrowers
Real estate investing requires a number of things to be successful. Investors often seek the qualities necessary to achieve their goals in their lenders– preparation, patience, and vision among other traits.
However, for most investors, equally important is finding a hard money lender to partner with throughout the process. Those needing financing will want to work with a hard money lender that’s more than just a lender. Rather, they need a true partner during every step.
Unfortunately, many borrowers fail to do their due diligence during their evaluation process of hard money lenders. Often, they suddenly find themselves trapped in a lending situation full of additional fees that quickly accumulate.
On the other hand, you can trust Bay Mountain Capital (BMC) to be your true partner throughout the process. BMC is proud of their high standards for itself and treats everyone with respect and integrity. Additionally, BMC strives to best position borrowers to profit from their projects.
One of the ways BMC demonstrates this commitment is through their processing fees.
What are processing fees?
Processing fees are simply the fees lenders charge to the borrower for processing the loan. The process begins when the potential borrower fills out an application.
Our application asks for the purchase price, location, the projected after-rehab value, and other general information. Once the borrower files the application and we review it, BMC will send out a term sheet.
The term sheet must be agreed upon prior to moving forward. Once the terms are finalized, BMC will begin to underwrite the loan. During underwriting, BMC orders an appraisal, runs title and finalizes other details. The processing fee helps cover most of the underwriting expenses.
How do other hard money lenders handle processing and other fees?
Everyone knows about interest rates when it comes real estate investment and loans in general. Origination fees – where the borrower pays the lender to lend the money – are also common.
However, it’s additional fees, like extra processing fees and others, that trap novice real estate borrowers into paying more.
The process is akin to a bait and switch.
For example, a hard money lender may advertise a 9% interest rate, which is great on the surface. When the borrower shows up at the closing table, however, they’re suddenly hit with “junk fees.”
Junk fees can include an underwriting fee, additional processing fees, a closing fee and other hidden fees. Now the borrower who took out a $100,000 loan pays four percentage points ($4,000), plus a two-point origination fee. Once all of the fees are added up, along with the interest rate, the actual percentage points attached to the $100,000 loan are significantly higher. They end up amounting to 15-16%, and not the 9% interest rate that initially caught the borrower’s attention.
As another example, a hard money lender may advertise a 9% interest rate. However, once a first-time borrower goes through the application process, they’re faced with a higher rate because they’re inexperienced. This takes place due to the borrower not being one of the lender’s “best borrowers.”
The surprise of these additional fees can lead to a bad experience and even set the borrower up for failure. This is especially true if they only expected to pay a certain amount in addition to the loan.
How does BMC differ from other hard money lenders?
At BMC, we don’t treat our borrowers as borrowers. Instead, we’re driven by our four core values – integrity, respect, improvement and excellence. We always aim to treat our borrowers as partners and help them achieve their real estate goals.
That’s reflected in our loan programs as well, which we’ve recently changed.
With our two programs – based on credit score – we’ve lowered our interest rates by more than a point. We did this in order to reflect the competitive market and ensure our borrowers are getting the best deal. Credit scores of 680 or higher will garner a 10.9% interest rate. Scores below 680 will net an interest rate of 12.5%.
We also have the ability to lend up to the lesser of 100% of cost or up to 70 % of after-rehab value. This will depend on the market where the property is located.
High Standards and Low Fees for Real Estate Borrowers: Transparency is Key
In addition to our newly reduced rates, our biggest differentiator is the transparency we provide borrowers from the very beginning. At the outset, any potential borrower is aware of the rate and fees associated with loan.
And fortunately, there aren’t many.
For example, we only charge one fee in addition to the interest rate – a flat processing fee of $595, no matter the loan amount.
So when the borrower shows up at the closing table, they may be paying a slightly higher interest rate, a two-point origination fee that every lender will include, and the $595 processing fee. In the end, the borrower is only paying approximately 13-14% in fees, compared to the typical 15-16% in fees associated with other lenders.
Regrettably, most beginning borrowers don’t realize the cost of the loan can be much greater than the loan amount once all of the junk fees from other hard money lenders are thrown in. At BMC, we strive to operate with complete transparency and build the trust between ourselves and the borrower that’s essential for a successful partnership.