For those who are trying to find a strong foothold in the real estate business, you’ve probably come across the idea of hard money lenders before. Also known as private lenders, these men and women have had somewhat shady reputation over the last few years.
A few bad cases have put a black spot on the business for many, but this does not mean you should be avoiding them in the same way you avoid white after Labor Day. In fact, hard money lenders are on the rise again.
Hard money lenders are a bit different than your other loan options out there. They’re shorter (usually 12 months, but can be extended to a few years), tend to focus more on property value than borrower credit history, and require monthly payments of interest until a balloon payment at the end.
They are available for almost all types of properties, but that largely depends on the hard money lender themselves.
So, have you thought about working with a hard money lender? Check out some of our crucial tips below.
Find a Lender Who Has Real Estate Experience
If you’re going to the gym and you hire a personal trainer, you want the personal trainer to have plenty of experience. You don’t want them to be someone who’s Googling how to use certain machines or constantly snacking on an open package of Oreos while you’re working out.
When you’re looking for a hard money lender, you want to find someone who has plenty of experience in the real estate market and is up to date with trends and terms. If you’re borrowing money to flip houses, does the lender have experience in the area?
You also want someone who is able to give you advice and counsel on certain properties, allowing you to learn and grow your business.
Find Someone Local
When looking to purchase property, you want someone who is going to know the local area. The real estate market in North Carolina is going to be quite different than the real estate market in Vermont.
Besides being knowledgeable about the local area, they may have more connections that can open more doors for you down the road. They can connect you with wholesalers, real estate agents, contractors, and even other people that can join your team. They can help build your network through their range of contacts.
With them being local, it also shows that that area is more important and vital to them instead of having areas spread around. You’re more likely to receive a personalized approach.
Look for the Ideal Timeline
One of the benefits of hard money lenders is that the loan requests are processed faster than at a bank. You might have to wait weeks to receive approval from a bank, whereas you can receive an answer from a hard money lender within a week.
If you’re looking for money quickly, make sure you find a lender who shares your same vision. This also comes into play when considering the terms of the loan. As stated above, most hard money lenders look for full repayment after 12 months, but can be extended in some cases.
Make sure you have a timeline set up beforehand and one that you can openly discuss with your lender. That way, you both will be on the same page and avoid any hiccups.
Watch Out for Fees
Just like anything in life, you’ve got to make sure and read the fine print. Some lenders may require third-party appraisals of the property or charging upfront fees for their services.
Make sure you’re asking about the interest rate up front, so you can easily calculate your numbers and see how much you will be paying over the term of the loan. While some fees may seem small and insignificant at first, they can quickly add up, costing your thousands of dollars in the long-run.
Be sure to ask about late fees, closing fees, documentation fees, underwriting fees, and more. There’s nothing shady about adding fees and many of them are simply part of the process, but you want to be well aware of them before you start working with any hard-money lenders.