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How Many Points Should You Pay For A Hard Money Loan?

Performance Property Real Estate Question

Q: How Many Points Should You Pay For A Hard Money Loan? Jenna, Melbourne, FL.


A: Hi Jenna. That’s a common question regarding hard money loans (HMLs). For starters, let’s not put the cart before the horse— it’s not about the points necessarily, it’s about the access to capital first and foremost. Make certain that you are only considering viable financing options before you begin comparing the specifics of different financing options.

For example, a hard money loan that doesn’t charge any points is irrelevant to you if the lender requires you to pay 30% of the acquisition or rehab cost if you don’t have the 30%! That’s like buying an outfit for the Oscars even though you can’t get a ticket to go. But even when you focus on the cost side of capital, it’s the overall cost not just the points that matters.

Questions you need to know include:

  • Do you have to make payments on the HML before the loan is paid back?
  • Will you have to personally guarantee the loan?
  • Will the hard money lender require a credit check?
  • Is there a minimum amount of time you have to pay interest on the money?
  • Will the lender offer additional capital if your project has cost overruns or you get ripped off by a contractor?

Points are part of the bigger picture that make up the overall terms associated with any contract that you sign–you are focusing only on one aspect of that bigger picture.

Thanks for your question, Jenna. For more real estate information and tips visit my blog at geraldlucas.com.