Hidden Costs of Private Land Loans: Complete Fee Breakdown + What to Actually Expect

By Eric Scharaga | Updated November 2024 | 10 min read

Mike thought he was getting an $80,000 land loan at 12% interest. Simple enough, right?

Then came the closing disclosure:

• 3 points ($2,400)

• Origination fee ($1,200)

• Underwriting fee ($800)

• Appraisal fee ($650)

• Document prep fee ($500)

• Commitment fee ($400)

• Credit report fee ($75)

His "simple" loan suddenly cost $6,025 at closing—before making a single payment.

That's 7.5% of the loan amount in fees alone. And these were just the upfront costs—more fees were coming during the loan term.

This happens every day in private land lending. After 15 years in this business and reviewing thousands of loan documents, I've seen it all. Today, I'm pulling back the curtain on every fee lenders charge, why they charge them, and how to calculate the true cost of any land loan.

Why Private Lenders Charge So Many Fees

Before we dive into the fee breakdown, let's understand why private lenders have more fees than traditional banks:

Reason #1: Higher Risk = Higher Costs

Vacant land is considered the riskiest real estate collateral:

• No cash flow to cover payments

• Harder to value accurately

• Slower to liquidate if borrower defaults

• More variables (zoning, access, utilities, buildability)

Lenders offset this risk with fees.

Reason #2: Smaller Loan Volumes

Banks make thousands of loans per year and spread fixed costs across volume. Private lenders make 50-200 loans annually, so each loan carries higher per-unit costs.

Reason #3: Customized Underwriting

Banks use automated underwriting systems. Private lenders manually review each deal, considering factors computers can't evaluate. This human analysis costs money.

Reason #4: Short-Term Nature

Private land loans typically run 12-24 months. Lenders must recoup costs quickly since they can't amortize them over 30 years like banks do.

Reason #5: Because They Can

Honestly? Many lenders charge fees simply because borrowers don't know to negotiate or compare. It's become standard practice, even when not justified.

The problem isn't that fees exist—it's that many are excessive, hidden, or unnecessary.

The Complete Private Land Loan Fee Breakdown

Here are all 20+ fees you might encounter when getting a private land loan:

Upfront Fees (At or Before Closing)

1. Origination Points (The Big One)

What it is: A percentage of the loan amount charged just for making the loan.

Typical cost: 1-5 points (1 point = 1% of loan amount)

• $100K loan at 3 points = $3,000

• $200K loan at 4 points = $8,000

Why lenders charge it: Supposed to cover their costs of processing and funding the loan. In reality, it's often pure profit.

Red flags:

• More than 3 points on vacant land

• Points on top of high interest rates (14%+)

• "Non-refundable" points if loan doesn't close

Fair alternative: $0 points, or 1-2 points maximum with lower interest rate

2. Loan Origination Fee

What it is: A flat fee to "originate" the loan (yes, separate from origination points).

Typical cost: $500-2,000

Why lenders charge it: Administrative costs, processing, file setup.

Red flags: Charging both origination points AND origination fee (double-dipping)

Fair alternative: Either charge points OR a flat fee, not both

3. Underwriting Fee

What it is: Fee for reviewing and approving your loan application.

Typical cost: $500-1,500

Why lenders charge it: Compensates for time spent analyzing the deal.

Red flags:

• Charging this on top of origination fees and points

• Non-refundable even if declined

• Charging more than $1,000

Fair alternative: Include this in the interest rate or origination fee, not separate

4. Application Fee

What it is: Fee just to submit your loan application.

Typical cost: $100-500

Why lenders charge it: Supposedly covers initial review.

Red flags:

• Non-refundable regardless of approval

• Charged before seeing any loan terms

• More than $250

Fair alternative: $0 application fee, or credited toward closing costs if approved

5. Commitment Fee

What it is: Fee to "commit" to funding your loan once approved.

Typical cost: 0.5-1% of loan amount ($500-1,000 on $100K loan)

Why lenders charge it: Supposedly holds funds for you and compensates for opportunity cost.

Red flags:

• Charged even if you haven't signed loan documents

• Non-refundable if you don't close

• Additional to points and origination fees

Fair alternative: $0 commitment fee—approval should be free

6. Appraisal Fee

What it is: Cost of third-party property appraisal.

Typical cost: $400-1,200 depending on property type and location

Why lenders charge it: Need to verify property value.

Reality check: Many land lenders use BPOs (broker price opinions) or internal valuations instead, but still charge "appraisal fees."

Red flags:

• Charging $800+ when they're not actually getting a formal appraisal

• Requiring appraisal on simple, clear-value properties

• Inflated costs vs. actual appraisal price

Fair alternative: Use comparable sales and tax assessor data for straightforward properties; only require appraisals for complex parcels

7. Credit Report Fee

What it is: Cost to pull your credit report.

Typical cost: $25-100

Actual cost to lender: $15-30

Red flags: Charging more than $50

Fair alternative: $0—lenders should absorb this minimal cost

8. Document Preparation Fee

What it is: Fee for preparing loan documents.

Typical cost: $300-800

Why lenders charge it: Attorney or document service costs.

Reality check: Most lenders use template documents that cost nothing to produce.

Red flags:

• More than $500

• Charging this when using standard templates

• Separate "attorney fee" plus doc prep fee

Fair alternative: Include in title/closing costs, not a separate line item

9. Wire Transfer Fee

What it is: Fee to wire loan proceeds to title company.

Typical cost: $25-75

Actual cost: $15-30

Red flags: Charging more than $50

Fair alternative: $0-25—this is a standard banking cost

10. Broker Fee (If Applicable)

What it is: Fee paid to mortgage broker who arranged the loan.

Typical cost: 1-3% of loan amount

Why it exists: Broker connects you to lender and takes a commission.

Red flags:

• Broker fee on top of lender's origination points

• Undisclosed broker compensation

• Broker steering you to higher-cost loans for bigger commissions

Fair alternative: Work directly with lenders who fund in-house (no broker markup)

Title and Closing Costs (Usually Legitimate)

11. Title Insurance

What it is: Insurance protecting lender from title defects.

Typical cost: $500-1,500 depending on loan amount and state

Why it's necessary: Protects lender if title issues emerge.

This is legitimate and expected. You'll pay this with any lender.

12. Title Search

What it is: Research to verify clear property ownership.

Typical cost: $150-400

This is also legitimate. Title work is essential.

13. Recording Fees

What it is: County fees to record the deed of trust/mortgage.

Typical cost: $50-200 depending on county

This is a pass-through government fee. You'll pay this with any loan.

14. Closing/Escrow Fee

What it is: Title company fee for handling the closing.

Typical cost: $300-600

This is standard and reasonable.

During-the-Loan Fees

15. Servicing Fee

What it is: Monthly fee if lender uses third-party loan servicer.

Typical cost: $15-40/month

Why it exists: Servicer collects payments, sends statements, handles escrow.

This is reasonable. Professional servicing protects both parties.

16. Late Payment Fee

What it is: Penalty for paying after grace period (usually 10-15 days late).

Typical cost: 5% of payment or $50-100 flat fee

This is standard. Don't pay late.

17. Property Inspection Fee

What it is: Fee for lender to inspect property during loan term.

Typical cost: $75-200 per inspection

When it's charged: Some lenders inspect quarterly or after missed payments.

Red flags:

• Routine inspections not disclosed upfront

• Inspections every month

• Charging more than $150 per inspection

Fair alternative: Only inspect if borrower is in default

18. NSF (Non-Sufficient Funds) Fee

What it is: Fee if your payment check bounces.

Typical cost: $35-75

This is standard. Ensure funds are available.

Extension and Exit Fees

19. Extension/Renewal Fee

What it is: Fee to extend your loan past the original maturity date.

Typical cost: 1-2 points (1-2% of remaining balance)

Example: $80K balance × 2% = $1,600 to extend 6-12 months

Red flags:

• More than 1 point for 6-month extension

• Requiring extensions at 12 months on a "24-month" loan

• Automatic extensions with automatic fees

Fair alternative: Reasonable extension terms disclosed upfront, or no extension fees at all

20. Prepayment Penalty

What it is: Fee for paying off loan early.

Typical cost: 1-3% of remaining balance, or X months of interest

Why lenders charge it: They wanted to earn interest for the full term.

Red flags:

• Prepayment penalties for the entire loan term

• More than 6 months of interest as penalty

• Not disclosed until closing

Fair alternative: No prepayment penalty after 3-6 months

21. Default Interest Rate

What it is: Higher interest rate if you're in default.

Typical cost: Additional 3-5% above contract rate

Example: 12% rate becomes 17% if you default

This is standard in most loans, but confirm the rate isn't predatory (over 21%).

22. Foreclosure Costs

What it is: Legal costs if lender must foreclose.

Typical cost: $5,000-15,000+

Borrower is responsible for these costs per loan documents. This is standard.

How to Calculate the TRUE Cost of Any Land Loan

Don't just look at interest rate. Calculate the All-In Cost:

Formula: Total Cost = Points + Fees + Interest + Extension Fees (if applicable) + Exit Costs

Example Comparison:

Lender A:

• Loan: $100,000

• Rate: 10%

• Term: 18 months

• Points: 3 ($3,000)

• Fees at closing: $2,500

• Interest (18 months): $15,000

• Prepayment penalty: 2% ($2,000)

• Total Cost: $22,500 (22.5% of loan amount)

Lender B:

• Loan: $100,000

• Rate: 13%

• Term: 24 months

• Points: $0

• Fees at closing: $600

• Interest (18 months, paid early): $19,500

• Prepayment penalty: $0

• Total Cost: $20,100 (20.1% of loan amount)

Lender B costs less despite the higher interest rate.

Always calculate total cost based on your expected hold period, not just the rate.

Red Flags: Predatory Lending Warning Signs

Walk away if you see these:

🚩 Total fees exceed 5% of loan amount at closing

🚩 Fees are "non-refundable" before loan closes

🚩 Lender won't provide itemized fee breakdown in writing

🚩 Hidden fees appear at closing not disclosed earlier

🚩 Prepayment penalties for entire loan term

🚩 Extension fees guaranteed to be needed (18-month loan with 12-month maturity clause requiring extension)

🚩 Lender is evasive about total costs ("We'll work out the details later")

🚩 Pressure to sign without reading ("This is standard, everyone signs")

🚩 Broker and lender fees both charged without disclosure

🚩 Fees that don't make sense ("technology fee," "processing fee," "administrative fee")

Questions to Ask BEFORE Applying

Get answers in writing to these questions:

About Fees:

1. What is the exact interest rate?

2. How many points are charged at closing?

3. What is the total of ALL fees at closing?

4. Are any fees non-refundable if the loan doesn't close?

5. Is there a prepayment penalty? For how long?

6. What are extension fees if I need more time?

7. Are there any monthly servicing fees?

8. What other costs could I encounter during the loan?

About Process: 9. How long to close after approval? 10. Do you fund in-house or broker the loan? 11. What documentation do you need? 12. Who handles the closing?

About Flexibility: 13. Can I pay off early without penalty? 14. What if I need to extend the term? 15. What if I want to sell the property before maturity?

If the lender can't answer these clearly and in writing, find a different lender.

How Damen Capital Fund is Different

After years of watching borrowers get nickel-and-dimed, I structured Damen Capital to eliminate unnecessary fees:

What You'll NEVER Pay with Us:

🚫 $0 Origination Points – Most lenders charge 2-4% of the loan amount. We charge zero.

🚫 $0 Origination Fee – No separate origination charge.

🚫 $0 Underwriting Fee – We don't charge you to review your deal.

🚫 $0 Application Fee – Apply for free.

🚫 $0 Commitment Fee – Approvals are free.

🚫 $0 Appraisal Fee – We use comparable sales and tax data.

🚫 $0 Credit Report Fee – We absorb this cost.

🚫 $0 Broker Fee – We fund in-house. No middleman markups.

🚫 $0 Document Prep Fees – Standard loan documents are included.

🚫 $0 Inspection Fees – We don't require routine inspections.

🚫 $0 Extension Fees – Need more time? No penalty.

🚫 $0 Prepayment Penalty (After 5 Months) – Pay off early without penalty.

What You WILL Pay:

✅ Interest Rate: 14-16% (competitive for vacant land)

✅ Exit Fee: 2% when loan is paid off (instead of points at closing)

✅ Title Costs: Standard title insurance, recording fees, closing costs (~$600 total)

That's it. Total costs at closing: ~$600.

Real Cost Comparison:

Typical Private Lender:

• $100K loan

• 3 points: $3,000

• Fees: $2,500

• 12% interest (12 months): $12,000

• Total: $17,500

Damen Capital:

• $100K loan

• 0 points: $0

• Fees: $600

• 14% interest (12 months): $14,000

• 2% exit fee: $2,000

• Total: $16,600

You save $900 despite the higher interest rate, and you pay only $600 at closing instead of $5,500.

Why We Structure It This Way

Philosophy #1: Fees Should Align Incentives

We make money when you succeed and pay off the loan, not by extracting fees upfront. If you lose the property to foreclosure, we don't want to have already profited from fees.

Philosophy #2: Cash Flow Matters

Paying $3,000-5,000 in fees at closing drains your working capital. Our structure preserves your cash for the business.

Philosophy #3: Transparency Builds Relationships

We want repeat clients who close 5-10 deals per year. Surprise fees destroy trust. Simple, clear pricing builds long-term relationships.

Philosophy #4: Speed is Our Value

We compete on speed and certainty, not by layering fees. You pay for fast approvals and reliable closings, not paperwork.

What Our Clients Say About Our Fee Structure

"I was shocked when the closing disclosure showed only $600 in fees. My last lender charged over $4,000 at closing. This is how private lending should work." – Jennifer M., Texas

"I've used three different private lenders. Damen is the only one that didn't have surprise fees at closing. Everything was exactly as quoted." – Mark R., Florida

"The 2% exit fee seems unusual at first, but when you do the math, I paid $2,800 less total than I would have with points upfront. Smart structure." – Sarah T., Arizona

Industry Change is Happening

More borrowers are demanding transparency. Lenders who continue charging excessive fees are losing market share to transparent lenders.

What you can do:

1. Always get fee quotes in writing before applying

2. Calculate total cost, not just rate

3. Compare 3+ lenders on total cost

4. Negotiate – many fees are negotiable

5. Walk away from predatory terms

The more borrowers demand transparency, the more the industry will change.

The Bottom Line on Private Land Loan Fees

Private land loans will always cost more than bank loans—the risk and service model require it. But excessive fees are not required.

What's reasonable:

• Interest rates: 12-16% for vacant land

• Points: 0-2 points maximum

• Total fees at closing: Under $2,000 (excluding legitimate title costs)

• Prepayment penalties: None, or max 3-6 months

• Extension fees: None, or max 1 point for 12 months

What's excessive:

• 3+ points at closing

• Multiple origination fees

• Hidden fees not disclosed upfront

• Total closing costs over 5% of loan amount

• Prepayment penalties for entire loan term

Key Takeaways:

• Calculate total cost, not just interest rate

• Get all fees in writing before applying

• Expect to pay 13-16% on vacant land (that's market rate)

• Points and fees should be minimal or zero

• Transparency is more valuable than the lowest advertised rate

Ready for transparent, simple land financing?

Get your fee quote in writing within 48 hours.

Call/Text: 302-526-0200Email: eric@damencapital.com