New Jersey hard money lenders charge points on loans just like the typical traditional lender. The reasoning behind the two types of loans is completely different; the traditional lender charges points in most cases to offset charging a lower interest rate. The reasons hard money lenders charge points is not related to the interest rate you pay in any way.
Calculation of Points
Points are charged as a percentage of the total loan amount. If the lender charges 1 point, this means you pay 1 percent. This means on a $500,000 loan you pay $5,000, a fee you must pay at the closing before the lender disburses any loan proceeds. Some lenders may choose to incorporate other fees within the point structure in order to make things simpler rather than charging those fees individually. They may charge separate fees for underwriting, loan processing and document preparation or may include all of these fees under the points. The lender may choose to identify these separate entries or simply leave them as a bulk payment and perhaps stating the fees covers all of the above.
Purpose of Points
New Jersey hard money lenders may charge points for many different reasons, and their distribution reflects those needs. Often lenders work together on different projects, so there may be referral fees involved in the distribution of points. The hard money lender may also have an agreement with a private investor to share a portion of the points in order for that investor to increase the amount of money he hopes to make from the deal.
You need to keep in mind when you are looking at New Jersey hard money lenders that not all of them will charge the same fees or have the same fee structure. It’s important to make sure you conduct enough research to make sure you are choosing the best one for your project with the most reasonable costs. That doesn’t mean you should make a decision based on the fees but rather choose the lender that has the best reputation and that provides the best options for you and your company.
Understanding the Total Structure of Your Hard Money Loan
Just knowing what is included within the points of a hard money loan is not enough. You need to understand the total structure and how it will affect the overall cost of your loan. The key issue of importance is understanding the factors that make up the total of the “points” and their distribution. If these do not see a breakdown of these figures in the contract and there is not a separate entry, you need to question the lender. Make sure you understand the average for certain fees in order to avoid being overcharged—this is why it is a good idea to enlist the services of a real estate attorney to help you review the contract before you sign it. Once you sign a contract with a hard money lender in New Jersey there is nothing an attorney can do for you at that point.