Your Hard Money Lender will always want to know about those who seek funding through them. In this same sense, you should know about your Lender. There are literally hundreds of reputable private hard money loan lenders in the US. With that said, there are several other, some established and some brand new up-starts, that can be everything from unprofessional and disorganized, to dishonest and down right shameful. I will attempt to clear up some of the mystique and help you choose the right lender with 6 Red Flags to Look For With Hard Money Lenders.
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Not responding in a timely manner.
Time is usually one of the most important factors for a lot of investors, especially those working in a short time window. If a hard money lender can’t accommodate you when it comes to the little things, how can you really trust them to be timely and professional when it comes to the larger ones? Pay close attention to how they react to your initial phone calls or emails. This can be a clue that this hard money lender is someone you probably don’t wish to be associated with.
Not being willing to put a solid commitment in writing.
Sometimes, you’ll encounter hard money lenders that will verbally offer specific points and rates, yet when it comes time to sign the loan papers? Surprise surprise, they say they can no longer offer the original rate. Somehow it’s been raised, and you’re stuck having to pay a couple of points. Because of the time crunch you’re in, you’re either stuck with this new offer, or you simply walk away. Be sure that your lender will put their rate and offer in writing, before you get to the signing phase.
It is imperative to ask how soon you can pay off your loan without a pre-payment penalty. Knowing in advance what the penalty will be if you were to pay off the loan early, can help you figure out a realistic time frame. Negotiate the terms before the escrow closes. If you already know that you won’t be keeping the loan for very long, you should ask to find out if the pre-pay to be waived or at least brought down to a minimum of three months.
Avoid upfront fees, especially for online lenders.
I’m all too familiar with the nightmares that investors have experienced with this. They pay the upfront fees of a hard money loan, come to find that the “lender” has skipped town with their money. And although some genuine private lenders do charge upfront fees, there are plenty that don’t. Your money is for your investment, not unnecessary fees.
If they are above 6 Points and/or 18% … do yourself a favor and shop around. In some states, much higher than 18% is actually usury & illegal. For less qualified Borrowers those rates are not unheard of, but shopping around will always be worth it.
Brokers like Glassridge can handle this for you, plus have an established network of over 100 Direct Lenders with various programs for everywhere in the USA.
Pending Lawsuits & Judgements.
If you’re going to take out a 6-figure loan, take some time researching the company’s founders and leadership team. Especially be on the lookout for any court filings or records of lawsuits. Just because they have suits isn’t necessarily bad, so look into it… but be careful and very thorough. Depending on the size of the loan and your background with your lender, you might even run a quick background check on the founders of the company to see if they have any felony record, especially fraud or securities frauds.
Also check out their financial background, make sure they don’t have any recent bankruptcies of their own… in the same way that your Lender will do a credit check on you, you can do a Business Credit Check on them!