Bridge loans, also known as hard money loans, can be a great way to purchase a new property without having to wait to sell the old one first. But there are things to know about these bridge loans and the rates and fees that come with them.

Bridge Loan Lenders

The rates for hard money loans can vary from lender to lender. They also can vary based on the specific type of loan, as well as the terms that are requested by the buyer. Since bridge loan lenders are private, they also tend to have higher interest rates than traditional, conventional lenders like banks or credit unions.

Generally speaking, a hard money lender will charge in the 8-14% interest rate. The best way to find competitive rates is to obtain quotes from several different lenders. How much money these hard money lenders will charge for interest can be based on the current market rates but also other specific factors about the loan, the property, and the borrower.

What are the points on a hard money loan?

Most bridge loan lenders will have points that they charge for things like loan origination fees. These points can range from 2 to 5, though it depends on both the type of loan as well as the requested term. What determines the charged points can depend on factors like difficulty in funding the specific loan, what competitors are charging for similar loans and the length of the loan term that is needed.

Generally speaking, a point is equivalent to 1% of the loan amount. So, if a bridge loan lender charged you 2 points on a $200,000 loan, the original fee would be $4,000.

Other fees

There are other lenders out there that will not only charge you the loan origination fee but additional costs like processing fees, administration fees, document fees, and underwriting fees. It is essential to know what these fees are before agreeing to anything as they can certainly add up quickly.

The borrower should always ask if the points quoted from a hard money lender include all of the fees or if there will be any additional costs that will be added to the loan. These “junk fees” can tack on a substantial amount of cost for the borrower and are nothing to scoff at.

Closing Costs

In addition to those loan origination fees and potential junk fees from the bridge loan lenders, the hard money loan can also have additional closing costs, and the borrower is 100% responsible for those fees. These are pretty standard real estate transaction costs that are required to close and record a loan transaction properly.

These third-party closing costs include title insurance, escrow, notary, and recording, and the exact fees will depend on the size of the loan, the cost of the services provided by the third party, and the county where all of this is recorded.

Generally speaking, the 8-14% interest rates from hard loan lenders is a good starting point if you are interested in obtaining that type of loan.