Basic Tips for Choosing a Reputable Hard Money Lender

Hard money loans can provide financing options to buyers who may not fit the stringent criteria and strict requirements of traditional lending.  This allows brokers to close on loans much quicker, since less bureaucracy and paperwork is involved.

Typically, hard money loans are made toward single-family residential homes, multi-unit dwellings and commercial properties. “Fix and flips-type” properties are also often funded with hard money loans since banks aren’t exactly thrilled with the idea of holding onto properties in need of serious repair.

This is great news for people who enjoy renovating properties, however, since interest rates can vary between 10% to the mid-teens and in some cases, interest payments can be deferred until the property is paid off – freeing up much-needed capital to make said repairs.

Hard money loans also have a much shorter timeframe than traditional loans, and can range from a few months to two or three years. Compared to 15, 20 or even 30 year fixed loans, a private loan could be the ideal option for someone in the situation of needing to buy a property quickly in a competitive real estate market.

So with these points in mind, how do you go about choosing a hard money lender to work with?  Many brokers claim to be direct hard money lenders, but if they don’t fit the criteria listed here, it’s best to move on.

The Company Should Specialize in Hard Money Lending

Beneath the surface, hard money loans can be complex and require individuals who are experienced and dedicated to properly structuring and executing these types of loans so that everyone is satisfied at each stage of the process.

Make sure to only choose a company that is knowledgeable about private loan origination, servicing and compliance and that makes hard money lending their specialty.

The Company Should Be Locally Owned and Operated

It’s understandable if a hard money lender wants to actually inspect the property they’ll be investing in, so it can pay off to work with a company that’s locally owned and operated. Of course, there are national hard money lenders, but these types of companies typically don’t have the flexibility of their local counterparts.

The Company Embraces Transparency

Watch out for so-called private money lenders who advertise “too good to be true” rates that seem to never come to fruition in actual lending situations.  When looking for a reliable hard money lender, make sure that they are willing to share all of the information pertaining to the loan, including adhering to requirements and guidelines.

When everyone is open, accessible and on the same page, loans can close more quickly, with terms that are favorable and amenable to everyone involved.

The Company is Fully Licensed

Hard money lenders may not be beholden to the same requirements and regulations as traditional lending institutions, but the best ones still follow proper licensing processes. Make sure that the company you’re looking to work with is licensed by Department of Real Estate and registered with organizations, including the Nationwide Mortgage Licensing System and Registry.

Make sure that your lender has a valid real estate broker license and don’t hesitate to check and see if any complaints have been filed against them. Does the lender have a valid, professional website or profile on a recognizable site such as LinkedIn?  Is their messaging consistent? These are all questions to ask yourself to avoid being taken for potentially thousands of dollars by some fly-by-night operation.

The Company Offers Many Different Types of Loans for Hard Money Financing

There is no “one size fits all” procedure when it comes to getting hard money financing. Different hard money loan types are available, including private money loans for foreclosures, commercial properties, fixer uppers and more.

If you are looking to acquire a hard money loan, have information available on the property, including the address, any critical deadlines, the purchase price, renovation budget and the asking price after renovations have been made.

The Company Understands the Intricacies of the LTV or Loan-to-Value Ratio

Large banks and lending institutions typically won’t loan more than 80% of a home’s value. Government-backed loans may exceed 90%, but what about hard money loans? Hard money lenders usually follow a more conservative route and look at the value of the property as if it were sold today. That price becomes the collateral basis for the loan.

The most important thing to do when considering a hard money loan is to do your homework. Hard money lenders may serve many different markets or specific loan types.  That’s why it’s vital that you actively look to build relationships with these lenders, as you never know when a prized property will suddenly become available, and you’ll need to act quickly in order to take advantage of the opportunity.

When such an opportunity arises, the last thing you want is to have your application tied up by the bank’s red tape. Buyers who seek out these types of loans generally need funds quickly, and don’t have the time to wait until the bank decides to take action.

This is why it’s so important to take the time to work with an established, specialized private money lending company – one that not only knows the local area, but is flexible enough to help buyers get the funding they need, even if they don’t match up with the “perfect” criteria that the banks may present.

If you have more question or need an assistance with your property loan, please call us directly or email Lending Bee using contact form.