Choosing a hard money lender is not a decision to be made on a whim. Depending on the purpose of the loan, there are several criteria to be taken into account when deciding on who to loan money from.
Considering the wide variety of available options, it is imperative that you do your research diligently, in order to avoid making a decision you will later regret.
Although this task may seem overwhelming at first, there are some tips you can follow which will make it easier for you to get a deal you are comfortable with. Below are six suggestions to keep in mind when looking for a hard money lender.
Know Your Needs
Before setting out on a search to find hard money, make sure you make a proper assessment of your needs. This will help you narrow down the list of potential hard money lenders since most of them specialize in different types of loans.
Are you interested in land loans, commercial loans, or something else entirely? The type of loan you are looking to get will largely dictate your choice of a hard money lender.
The two most important questions to ask yourself at this point are: “What do I want to invest in?” and “How quickly do I need the funds?”. Answering these questions is a good start, and will help you in your research.
Opt for a Local Hard Money Lender if Possible
The reasoning behind this is simple. The hard money lender will probably want to assess the property you want to take a loan against on-site and may charge you for their travel expenses.
Apart from that, a local lender is familiar with your real estate market and will be able to provide you with more accurate underwriting and better customer service. They are also more likely to offer more flexibility compared to lenders with national branch networks.
Research The Lender
Once you have a specific hard money lender in mind, it is time to research them thoroughly.
The first thing you should do is check for a license. Most lenders are licensed by appropriate state authorities and affiliated with different organizations. A valid license, or a lack thereof, will give you a good idea of whether you want to move forward with them, or look for someone else.
You should also use the internet to do some research. Visit their website and see what kinds of loans and services they offer and read up about them, then try to find out what kind of experiences others have had with them. If you are satisfied with what you’ve found, you can shortlist them and move on.
Make Sure They Are Being Completely Transparent With You The Whole Time
Although this may seem obvious, it can’t be stressed enough. Both parties should have insight into all data pertaining to the loan at all times, and the lender should comply with the provisions of loan program guidelines.
Read all the paperwork thoroughly and make sure you understand it completely before signing anything. Don’t hesitate to ask questions or seek advice, and keep in mind: if something seems too good to be true, it usually is.
Compare The Terms They Are Offering
Once you have narrowed down your search, you should compare the offered interest rates and other terms of the loan.
While most hard money lenders offer roughly similar rates, take some time to consider the total expenses associated with the loan, including not only interest rates but also any other loan processing fees. Another factor to consider is the duration of the loan term since long-term loans are associated with a higher interest rate, compared to short or medium-term loans.
Understand The Loan-to-Value Ratio And How It Affects Your Loan Costs
Since your property is used as collateral for the loan, you need to make sure you understand how the lender assesses the value of your property. While most hard money lenders use current property value to calculate the loan-to-value ratio, there may also be other, more favorable options, depending on the type of the loan.
Explore all the possibilities with the lender and make sure you understand how your loan costs will be affected in order to be able to decide which option suits you the best.
The differences between hard money lenders can vary from subtle to significant, mainly depending on the field they specialize in. From LTV ratios, minimum and maximum amounts they offer to loan, interest rates, and level of customer service they provide, there are many factors to take into account when choosing a lender.
However, if you take some time to do your research and follow the tips given above, the task should prove much less intimidating and you should be able to get yourself the best deal possible.