5 Questions to Ask Hard Money Lenders Near Me Before You Hire Someone!

As a real estate investor, timing is everything. You might find yourself in situations where you need to close on a property quickly. That’s where a hard money lender comes in.  

A hard money lender is a financier who provides loans secured by real estate properties. They typically charge higher rates than banks but they offer property loans that a bank may be reluctant to provide. 

Additionally, they conduct transactions faster than banks and require less documentation. Their lending depends on assets rather than cash flow and credit score as is with the banks. 

But as convenient as they might be, applying for a hard money loan can be a bit challenging, especially for beginner real estate investors. 

If you’re looking to borrow some cash for investment, here are some questions to ask viable hard money before signing on the dotted line:

1. How Much Do They Charge for Their Loan?

When you talk to your hard money lender, ask about their total fees such as origination fees and processing fees such as desk fees and legal fees. This way, you won’t be blindsided when it comes to making full payment. 

It is also important to ask for points and interests. Points and interest rates change across regions and individual lenders. In general, borrowers should expect to pay interest rates ranging from 10% to 15% on hard money loans and points ranging from 2% to 4% of the loan amount.  

2. How Long Has the Lender Been in Business?

You want to work with a lender who’s been in business long enough to understand the ins and outs of the real estate business, which obviously is Asset Based Lending. It can be experienced in terms of years or a considerable number of loanees on their portfolio. This way, you can better establish an understanding and harmonious working relationship.

3. What Do You Need to Actually Close On a Deal?

Documentation requirements vary with the hard money lender but most hard money lenders will ask for some form of identification and months’ worth of bank statements to show your liquidity. 

Expect the lender to ask you to sign a Deed of Trust as security for the loan. Some will require personal financial statements such as past tax returns and proof of income.

4. What Are the Lender’s Typical Terms?

The standard term for a hard money loan is 6 months to 3 years. Loans requiring longer than 3 years are usually outside the orbit of their terms. Loans for single-family home renovations tend to run for 6-12 months while a commercial shopping center renovation term would likely be 2-3 years. 

Some lenders require you to guarantee them as the lender of record while others are willing to make subordinate loans as another vendor takes care of the primary mortgage.

5. How Long Will It Take to Fund the Loan?

As highlighted earlier, timing is everything in real estate and you want to work with a hard money lender who can make cash quickly accessible to you for investing. 

Hard money lenders should be able to approve and close a hard money loan within 14 days, Reliable direct lenders can fund hard money loans within 3-5 days if the funding is required to salvage a deal.

To Sum It Up

As a real estate investor learning the ropes of the business, it is very easy to find a hard money lender who can take advantage of you. However, the questions listed above should help you identify a viable lender you can do business with so you can grow your investment portfolio.