Expense Deposits...

What Are Expense Deposits?

There are a lot of fees handled during a mortgage process accrued through doing research, preparing legal documents, pulling credit and ordering appraisals. All of this comes at a cost. In most cases the lender pays for those fees themselves (Aside from the appraisal, that is your expense 9 times out of 10) and throws them on your closing statement to pay at closing.

In this case, the broker or underwriter requests some of the fees upfront in order to pay for their research into your deal.

What Should I Expect?

Honestly, if you haven’t received a quote or term sheet from that broker or lender to review - don’t pay them a dime. Terms shouldn’t cost you anything except some minor documents, answers to questions and time. 

If they request payment at the very beginning of the process like that then it very much could be a scam. Make them earn that by giving you something to review first. 

Another thing I would do is request documentation, a contract, or insure that there is verbiage on the Commitment Letter or Letter of Intent stating the purpose, for how much and how the payment is to be processed.

Appraisal Payments Are Required

In most instances there will be no expense deposit requested, but that doesn’t mean you are out of the woods with no “upfront” costs. Most investors in Hard Money Lending require Appraisals or BPO’s (Broker Price Opinions) to be done on the property. 

These valuations are contracted out to third party companies who will send you the payment quotes directly. Payments on these must be made in order to continue the loan process. Appraisals are needed to determine the value of your property in its current condition, or in the condition you hope it to be after fixing it up.

What Do Cost’s Look Like?

For Expense Deposits those can vary anywhere between $500-$3,000. For larger commercial properties it could go up to $10-$20k. In some matters the fee may just be a means of loyalty and you’ll be refunded at closing or have a fee reduced as a credit to you. In those cases if you switch investors mid process it will be nonrefundable.

Appraisals tend to be around the same, dependent on the property type. Residential 1-4 Units tend to have the lower fees between $500-$1,200 but if you move to Commercial properties the payment shoots up to $2,000-$4,000.

BPO’s (Broker Price Opinions) are the lower fees and are a lot faster turnaround times. Typically these cost around $250-$400 dependent on property type as well.

Document Fees can range between $250-$600 and in very rare circumstances are due before closing - but still an expense that must be paid.

Soon we will give you a Fee Sheet, so you can get an idea of what basic fees cost. Do keep in mind, they vary by lender, property and credit score but we can give you some basics.

In Conclusion

Are Expense Deposits a scam? I’d say only if requested before obtaining some type of term sheet to review first. IF the “broker” or “lender”  is trying to get money out of you at the qualification stage, I’d begin questioning if they are even a broker or lender.

Make them do the work and then pay in response to wanting to move forward with what they presented. Nothing less and nothing more. 

If you’re looking for funding for your real estate, look no further than us! We can point you in the right direction, all you must do is apply!