Private real estate loans—often provided by hard money or private money lenders—are designed for speed and flexibility. That structure helps investors, heirs, and property owners move quickly when traditional financing is too slow or unavailable. But along with that flexibility comes a different fee structure than you’d see with a conventional bank mortgage.
Understanding the common fees in private real estate loans helps you compare offers accurately and avoid surprises at closing. When you know what to expect, you can focus on whether the total cost of the loan makes sense for your project, timeline, and strategy—not just on the interest rate alone.
What Are Private Real Estate Loan Fees?
Fees in private real estate loans are charges associated with evaluating, structuring, documenting, and servicing the loan. Some are paid to the lender directly, while others go to third parties such as appraisers, title companies, or escrow officers.
Unlike many conventional loans, where costs are heavily standardized, private loans are more deal-specific. Two loans of the same size can have different fee profiles depending on the property, risk level, timeline, and complexity. That’s why it’s important to look at the full fee picture—not just one line item.
Origination Points (Lender Points)
One of the most common fees in private real estate loans is the origination fee, often expressed as “points.”
- Points are typically a percentage of the loan amount (for example, 1–3 points means 1–3% of the total loan).
- These points compensate the lender for evaluating the deal, committing capital, and taking on risk.
Origination fees are usually paid at closing and may be deducted from the loan proceeds. When comparing offers, it’s essential to factor in both the interest rate and the points charged, because together they determine your true cost of capital.
Underwriting, Processing, and Document Preparation Fees
In addition to points, private lenders may charge separate fees for:
- Underwriting – Reviewing the property, exit strategy, and borrower profile.
- Processing – Coordinating documents, verifications, and communication with third parties.
- Document preparation – Drafting loan documents, deeds of trust, and related paperwork.
Sometimes these fees are bundled into a single “loan processing” line item; other times they’re broken out individually. They help cover the administrative work required to analyze and document a loan on a compressed timeline.
Appraisal and Valuation Costs
Because private real estate loans are asset-based, accurate valuation of the property is crucial. Common valuation-related fees include:
- Appraisal fees – Paid to a licensed appraiser to provide a formal opinion of value.
- Broker price opinions (BPOs) – Less formal valuations sometimes used for certain loan types.
- Inspection fees – In renovation or construction projects, to verify condition or progress.
These costs are typically passed through directly to the borrower. Even when a lender moves quickly, they still need a defensible understanding of what the collateral is worth today—and, in some cases, what it may be worth after repairs.
Title, Escrow, and Closing Costs
Many of the fees associated with closing a private real estate loan are similar to those in conventional transactions, including:
- Title insurance premiums – Protecting against title defects or undisclosed liens.
- Escrow or closing fees – Charged by the escrow company or attorney managing the closing.
- Recording fees – Paid to the county to record deeds and deeds of trust.
- Notary fees – For notarizing required documents.
These charges generally go to third-party service providers, not the lender, but they are part of your total cost to close and should be included in your budgeting.
Broker Fees and Referral Fees
If you’re working with a mortgage broker or intermediary, they may charge a separate fee for arranging the private loan. This can be expressed as:
- A percentage of the loan amount (points), or
- A flat fee disclosed on the closing statement.
In some cases, broker fees are paid in addition to lender points. In others, they’re built into the overall structure. Either way, they should be clearly disclosed so you know who is being compensated and for what role.
Extension and Renewal Fees
Many private real estate loans are short-term, with defined maturity dates. If you reach that date and need more time, the lender may offer an extension or renewal. This often comes with its own fees, such as:
- A flat extension fee
- Additional points calculated on the outstanding balance
- Adjustments to the interest rate or terms
Because extensions can be expensive, it’s smart to plan your project timeline conservatively. If you think you may need extra time, ask about extension options and costs before you sign the original loan documents.
Prepayment Penalties and Minimum Interest
Some private loans include prepayment penalties or minimum interest provisions. These are designed to ensure the lender earns a minimum return even if the loan is paid off early. Common structures include:
- A minimum number of months of interest (for example, three or six months), or
- A flat prepayment fee if the loan is repaid before a specified date.
While not all private loans have prepayment penalties, it’s important to read this section carefully. If your plan is to sell or refinance quickly, a minimum interest requirement can meaningfully affect your true cost.
Default-Related Fees and Legal Costs
If a borrower falls behind on payments or otherwise defaults, additional fees may apply, such as:
- Late charges – A percentage of the overdue payment.
- Default interest – A higher interest rate triggered by default.
- Legal fees – Costs associated with enforcing the loan documents or initiating foreclosure proceedings.
No one plans to default, but understanding how costs escalate in that scenario is part of responsible borrowing. A clear view of default-related fees can also motivate more proactive communication with the lender if challenges arise.
How Fees Are Disclosed and Quoted
Reputable private lenders will provide a written breakdown of fees well before closing. You may see:
- A term sheet summarizing major fees, rates, and structures.
- A detailed closing statement itemizing lender, broker, title, escrow, and third-party charges.
When comparing multiple loan options, it’s helpful to calculate:
- Total upfront fees (points, underwriting, document prep, broker fees).
- Estimated interest cost over your expected holding period.
- Any extension, prepayment, or default charges that could realistically come into play.
Looking at the full picture—not just a few headline numbers—helps you choose the loan that best fits your strategy.
How California Hard Money Lender Approaches Fees
At California Hard Money Lender, transparency around fees is a core part of how we operate. Our goal is to structure private real estate loans that match the realities of California’s market while making it clear how and why each cost applies.
We focus on:
- Clearly outlining lender points and any additional fees up front
- Separating third-party costs (title, escrow, appraisal) from lender charges
- Structuring terms so borrowers understand how extensions, prepayments, or modifications would work if needed
Because many of our clients are investors, heirs, and property owners navigating time-sensitive or complex situations, our role is to provide both speed and clarity—so you can evaluate whether the total cost of the loan aligns with your goals.
Questions to Ask Before You Sign
Before committing to any private real estate loan, it’s wise to ask your lender:
- What are the total lender fees, including points and processing?
- Are there broker or referral fees in addition to lender charges?
- What will third-party costs (title, escrow, appraisal) look like for this deal?
- Is there a prepayment penalty or minimum interest requirement?
- What happens—and what fees apply—if I need an extension?
- How are late payments handled, and what are the default-related charges?
Getting these answers in writing gives you a more complete picture of your true cost of capital and helps you structure your project or estate plan accordingly.
IMPORTANT NOTE
This article is for general informational purposes only and should not be considered financial, tax, or legal advice. Fee structures, regulations, and loan terms vary by lender and by state. Before entering into a private real estate loan or any financing arrangement, you should consult a qualified financial advisor, attorney, and licensed mortgage or lending professional to review your specific situation and objectives.
