How to Select a Hard Money Lender
Because many borrowers are unfamiliar with the concept of a hard money lender, they are unsure how to select a good lender. But a few tips on the selection process can make the process much less stressful.
For most borrowers, hard money lending is not as well known a resource as a traditional lender. But there are a great many choices for a legitimate and honest hard money lender. All borrowers need to do is follow a few tips and guidelines when checking out potential lenders to ensure that they make a great choice and are satisfied with their hard money borrowing experience.
Especially for a first experience in hard money lending, it is always a good idea to select a firm who specializes in hard money. The terms and processes for a hard money loan vary a bit from a more traditional loan so having an experienced lender can make your first borrowing experience must less stressful. In addition, an experienced lender will be in a much better position to answer your questions and provide you with a detailed explanation of the process and fee structure of your loan.
Having an experienced hard money lender is important but will also want to focus your search in your local area. Being able to work through the loan process in person, ask questions face to face and talk about any questions or concerns that you might have about the loan agreement at the signing can be very reassuring. Taking out a large loan can be a bit unnerving and having a local contact is a great way to help eliminate some of the added stress and uncertainty.
Understand the Loan to Value Principal
Conventional loans are secured mostly on the borrower’s credit rating, credit history and their perceived ability to repay the loan that is being requested. But hard money loans are based on what is called the loan to value ratio. This is a comparison between the amount of the loan and the actual current sale value of the property. In most cases, a hard money loan will never exceed 70% of the current market value of the property that is being used as collateral. This protects the lender in the event that you default on the loan and he or she needs to sell the property to recover the loan amount.
Understand All of the Loan Terms
Traditional loans have very few terms and can include a down payment, interest rate, late fee penalty and length of the payment schedule. But there are additional terms that can be included in a hard money loan that you need to understand. These terms can include fees prior to the approval of the loan, finding fees once the loan is approved and terms regarding the lenders right to the property if you fail to make a payment. The terms will also outline the interest rate, which is always higher than a traditional loan and the length of time that you have to pay off the loan. Once catch that many borrowers do not expect or look for is the option to pay the loan off early. You will want to know if your hard money lender will not allow an early pay-off. This is because he or she is not willing to forfeit the added interest that you are paying. Be sure to carefully research any potential lenders and the terms that they are offering prior to signing documents for a hard money loan. This investment of time will ensure a good loan experience.
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.