This is usually the very first question I get asked, before we've even talked about the property. How many points am I going to charge. I get it and I understand why. Points feel like the one number you can control, so that's where everyone's attention goes first. Let me actually explain what they are and why they exist, then we can talk about whether they should be the thing you're focused on at all.
What a Point Actually Is
A point is one percent of your loan amount, charged once, at closing. If you're borrowing two hundred thousand dollars and the loan has two points, that's four thousand dollars paid at the closing table. It's separate from your interest rate. Rate is what you pay over time as the loan sits open. Points are a one time fee for originating the loan in the first place.
Why Lenders Charge Them
Here's the part most people never ask about, but I'll tell you anyway. Underwriting a hard money loan takes real work on our end. We're evaluating the property, the numbers, your plan, and your experience, all inside a timeline measured in days, not weeks. Points are how that work gets compensated, and how a lender prices the risk of a short term loan that could go sideways if a deal falls apart. A thirty year mortgage spreads its costs out over three decades. A hard money loan might only be open for six months, so the economics have to work differently.
Where Investors Get Confused
I see so many people struggle here because they're focused on the wrong thing. They compare two points against three points, or one lender's rate against another's, and stop the analysis right there. What actually matters is the total cost of the capital against what the deal produces. A slightly higher point structure on a lender who actually closes on time and doesn't nickel and dime you with junk fees later is worth more than a lower quoted number from someone who can't deliver.
I learned this from the other direction, building a book of notes through seller financing before I ever originated a loan myself. When you're the one holding the paper, you understand exactly why pricing exists the way it does; it's not arbitrary, and it's not padding. It's what makes it possible for capital to actually show up fast when a deal needs it.
If you're buying the deal right, what I charge in points really doesn't move the needle much on your outcome. It's when the deal itself is shaky that people start counting other people's money instead of their own, and no amount of a better point structure fixes that problem.
What I'd Ask You Instead
Before we ever get to points, here's what I actually want to know. What does the deal produce if everything goes right? What does it still produce if something goes wrong? Have you built in a real cushion, or is this deal only profitable if every single thing goes according to plan?
If those numbers work, a point or two either direction isn't going to be what makes or breaks this for you. Tell me about the deal and I'll walk you through exactly what it costs, no surprises later.