Common Fees in Private Real Estate Loans

Private real estate loans carry a different fee stack than bank mortgages. The bank world consolidates costs into a relatively short list of standardized line items; the private lending world unbundles them into origination points, broker compensation, processing fees, draw fees, extension fees, and a handful of third-party costs that the borrower pays directly. A clear picture of those costs is what separates a private loan that pencils out from one that quietly eats the project margin.

This article walks through each major fee a California borrower should expect on a private real estate loan, what each one actually pays for, what the reasonable ranges look like in 2026, how California regulators frame disclosure, and the specific questions to ask before signing a term sheet. It closes with the most common fee questions California borrowers ask.

Origination Points

Origination points are the lender’s compensation for putting the loan together. One point equals one percent of the loan amount, charged at closing out of loan proceeds or as a separate wire. Private real estate loans in California commonly carry one to three points; loans with unusual collateral, fast timelines, or weaker borrowers can carry more. The point structure is set in the term sheet and disclosed in writing before closing.

Origination fees, points, and other finance charges are itemized under disclosure rules administered by the Consumer Financial Protection Bureau in Regulation Z, even when the underlying loan is a business-purpose private loan exempt from the federal ability-to-repay rules. Borrowers should always read the closing statement carefully and confirm the points charged match the term sheet.

Broker Fees

If a broker arranged the loan, the broker’s compensation is disclosed separately, usually as a percentage of the loan amount or a flat fee. In California, brokered private loans typically flow through licensees of the California Department of Real Estate, who are required to disclose the broker’s compensation in writing before the loan funds. Broker fees usually range from one to three points; total origination plus broker compensation is the figure the borrower should benchmark against alternative offers.

A borrower who feels comfortable working directly with a lender can sometimes avoid the broker fee, but the trade-off is that the broker often shops the deal to multiple investor pools and may secure better rate, leverage, or term flexibility than the borrower could on their own. The right answer depends on the specifics of the project and the relationships available to the borrower.

Processing and Underwriting Fees

Processing and underwriting fees cover the lender’s internal work to collect documents, run background checks, order the appraisal, and prepare the loan package. They are usually flat-dollar fees rather than percentages, commonly running from a few hundred dollars to roughly $1,500. Some lenders bundle these into a single administrative fee; others itemize each step.

Borrowers should ask whether the processing and underwriting fees are refundable if the loan does not close. The honest answer is usually no, because the work has been done by the time the loan dies. That makes it worth confirming the deal is realistic before paying any upfront fees beyond an appraisal deposit.

Appraisal and Inspection Fees

The borrower almost always pays for the appraisal directly, separate from the loan proceeds. In California, a single-family residential appraisal typically runs $500 to $900, more for larger properties, complex assignments, or rural locations. On rehab loans the borrower also pays for the construction inspection on each draw, generally $150 to $300 per visit.

Some lenders order a broker price opinion or an automated valuation in place of, or alongside, the formal appraisal. Those alternatives can be faster and cheaper, but they may not be acceptable if the loan needs to be sold into a secondary market or if the borrower expects to refinance into a conforming product later. The right valuation choice depends on the loan strategy.

Title, Escrow, and Recording Fees

Title insurance, escrow services, and county recording fees are third-party costs that apply on any California real estate loan, private or bank. A California title insurance policy on a typical single-family property runs in the hundreds to low thousands of dollars depending on the loan amount and the policy type. Escrow handles the closing mechanics; recording fees pay the county to record the deed of trust against the property.

These costs are not negotiable with the lender because they go to outside parties, but the borrower may have a choice of escrow and title providers. On a refinance, the borrower sometimes gets credit for an existing owner’s title policy that the new lender can re-issue. Asking the question is worth doing.

Prepaid Interest and Reserves

Most private loans charge prepaid interest from the closing date to the end of the closing month, collected at funding. On a loan closing on the 18th, that is typically thirteen or fourteen days of interest. Some lenders also collect a small interest reserve at closing as a cushion if the borrower has not yet stabilized cash flow from the property.

On rehab loans, the lender may collect a reserve sized to cover several months of payments out of loan proceeds. That structure protects the borrower against a missed payment during construction and gives the lender comfort that interest will be paid even if the project stalls. The reserve is a real cost to the borrower because it reduces the cash actually available to fund the deal.

Draw Fees on Rehab Loans

Rehab loans almost always charge a per-draw fee, typically $150 to $500 per draw, which covers the inspection and the wire. A loan with eight draws across a year can quietly accumulate a few thousand dollars in draw costs that did not show up on the term sheet’s headline rate. Borrowers should ask for the full draw fee schedule before signing.

The total fee load on a rehab loan is one of the reasons rehab and fix-and-flip products live in a category of their own. For a deeper walk-through of how the rehab loan product is built around ARV, see the related post on What Is a Rehab Loan?.

Extension and Default Fees

Private loans run on short timelines, usually six to eighteen months. When a project runs longer than the original term and the borrower needs more time, the lender charges an extension fee, often half a point to one point per quarter of extension. Some loans build a single extension option into the original term; others require renegotiation.

Default-rate interest is a separate category. Most California private loans carry a default interest rate of five to ten percentage points above the note rate, triggered by a missed payment or by passing the maturity date without payoff. Default-rate interest is not a profit center the borrower should plan around; it is a stick that exists to make the borrower pay attention. The mechanics are usually similar to those described in the related post on What Is a Balloon Payment on a Loan?.

Who Regulates These Fees in California

California finance lenders and brokers operate under licensing rules administered by the California DFPI California Financing Law program, which sets ground rules for how charges are quoted and disclosed. Loans arranged by real-estate brokers fall under the California Department of Real Estate’s framework instead. The licensing pathway changes the regulator and some specific disclosures, but the overall expectation is the same: every fee gets disclosed in writing before the loan funds.

Industry trade groups also publish practice norms. Fee structures vary by lender, but the American Association of Private Lenders publishes industry norms that borrowers can use as a sanity check against quotes that look unusually high or low.

Private real estate loan fee questions

What is the total cost of a private real estate loan?

Total cost is the sum of origination and broker points, processing, underwriting, appraisal, inspection, title, escrow, recording, prepaid interest, and any draw or extension fees. On a typical California private loan, that stack runs roughly three to six percent of the loan amount at closing, plus the ongoing interest rate.

Are private loan fees negotiable?

Origination and broker points are usually negotiable on stronger deals or repeat-borrower relationships. Third-party costs like title, escrow, and county recording are not negotiable with the lender because they go to outside providers, though the borrower may have a choice of vendor.

Why are private loan fees higher than bank loan fees?

Private loans close faster, accept assets and borrowers that banks will not, and have to pay for the speed and flexibility somewhere. The fee load and the higher interest rate are how private lenders earn that risk premium. Borrowers who do not need the speed or flexibility are usually better served by a bank loan.

When are private loan fees disclosed?

Every material fee is disclosed in the term sheet before signing and re-disclosed on the final closing statement. Borrowers should compare the closing statement against the term sheet line by line and ask about any difference before authorizing the wire.

Do I pay any private loan fees upfront before closing?

Usually only an appraisal deposit and sometimes an inspection or report-ordering fee. Origination points, broker fees, and most processing costs are paid out of loan proceeds at closing.

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.