So you have decided that a hard money loan is the right choice to further your project, but what should you be looking for when choosing a lender? These key questions should definitely point you in the right direction.
- Are they the actual lender or are they just a broker for another lender?
- Do they check your personal credit? If so, is there a minimum score needed?
- What project details and documentation do they need to make a quote? How long will it take to get a quote?
- How many fix and flip loans have they funded in the past 12 months?
- Where does their money come from? Is the money they lend in their possession and in their control, or do they have to go raise it from a third party?
- How long does it take them to close a deal?
- What happens to your loan after funding? Do they sell it or keep it in-house?
- Who does the loan servicing? The lender or a third-party servicer?
- Do they rely on 3rd party appraisals, or underwrite loans in-house?
- What kind of loan documentation is involved? And who prepares those loan documents?
- What happens with your loan if the project takes longer than expected? Can the loan be extended?
- How do you pay interest? All up front, monthly pre-paid, monthly in arrears, all at the end?
- If the lender provides you a quote, is that quote 100% firm on its terms?
- Have they ever quoted a loan, and then changed the quoted terms prior to closing?
- Does the lender only lend? Or do they also flip houses themselves? (If they also flip houses, are you comfortable with that as a borrower given that your lender competes with you)?
- Have they ever foreclosed on a loan? If so, why?
- Have the lender provide you references to a few of their other borrowers so you can call and ask them questions.
For a more detailed overview of How to Choose the Right Hard Money Lender read our guide on the 4 C’s of private financing.