What Questions Must a Real Estate Investor Ask While Finding Hard Money Lenders?
Finding hard money lenders is easy, but they aren’t all created equal and it’s very important to be selective.
In order to do your homework, these are the key questions you must ask when seeking out a hard money lender and submitting your loan application:
1) How Much Experience Do You Have?
Make sure you choose an experienced hard money lender for your project. With an experienced lender that has been in business for years, they understand the cyclical nature of the industry. These individuals can suggest an appropriate loan for your real estate investing business, including some advice on avoiding potential risks and pitfalls in your business.
2) Are You a Licensed Lender?
If a lender is licensed and State approved, that individual is bound to follow state mandated rules which provide customer protection. Their website must display their license ID, which can be researched on the licensing state’s website. One example is the Texas Real Estate Commission website, which allows you to check the licenses of Texas real estate lenders.
3) Can You Show me Your References or Testimonials?
A good hard money lender should not hesitate to show you the reviews and testimonials by his/her previous clients. These reviews are often on lender’s own website, but better reviews can be found from third party sources. Considering the lender’s length of time in business, if he or she doesn’t have enough satisfactory reviews, you should be on high alert.
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4) How Do You Fix Your Interest Rate?
Generally, hard money interest rates are determined by the property type, risk analysis, and your credit rating. Hard money loan interest rates are higher than bank rates and range from 8% to 18%. There is greater flexibility in hard money loan rates and you should keep this in mind when you negotiate with the lender.
5) How Fast You Can Approve My Loan Application?
Hard money lenders are known for their quick approval of loans as they have very few requirements. The lenders approve loans within a week (or in some cases, the same day) if they determine you’ve provided satisfactory information. Asking about the lender’s funding timeline, and indicating your own need, is crucial when you want to close the deal on time to increase your cash flow. Providing proper documentation, project status, and a solid exit strategy will improve turnaround time on this approval.
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6) How Much Loan to Value (LTV) Can You Offer?
Since property values are the key driver of a hard money loan’s value, it’s important to talk about the Loan to Value (LTV) on your investment. The LTV is the funding amount a lender provides on the basis of the existing value of property. It will vary from lender to lender.
LTVs are typically lower on land, commercial property, and rural houses due to the greater risks involved in these projects. Some hard money lenders provide funds on the After Repair Value (ARV), which is the value of the property after remodeling.
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7) What Types of Loans Do You Offer?
Some lenders are specialized in a niche loan category, while others have a broad loan portfolio. If you need a loan for buying and remodeling a property, you will want to select a lender that is more accustomed to a broad loan offering. You are more likely to see success working with a lender that is more aligned to your project’s needs.
The Last Word
By asking these questions, you can get a good sense of the lender’s services and criteria, helping you to find just the right one for your investment property.
David Mixon, owner of Loans 4 Investors, has been in the real estate business for 20+ years. His company specializes in Private Hard Money Lending for Real Estate Investors and Home Builders. He and his wife also have lots of fun traveling across the US in their RV exploring new markets and developing their power teams as they go! David was raised on motorcycles and it is still a huge passion of his to ride his Harley Davidson for the pure pleasure of it.