If you are in the real estate industry, private hard money lenders are among the most important people you want to establish relationships with.
For years, they have played a significant role as a financing option for investors in the real estate sector, particularly those with a poor credit score or those looking for quick money for time-sensitive projects.
For experienced real estate entrepreneurs, finding the right hard money lender may be easy. However, if you are a budding real estate entrepreneur, it may not be as easy. But worry not, as this article will highlight five critical things you should consider when choosing a hard money lender.
Five key factors to consider when choosing the right hard money lender
1. The geographical location of your lender
Although you may find what feels like a good deal outside your state, dealing with a lender from your locality is always advisable. This is mainly because a local lender will have a better insight into the local business scene and is easily reachable, making closing deals much easier.
Additionally, most hard money lenders prefer to view or have somebody view the property you intend to buy on their behalf, which may not be very convenient when working with off-state hard money lenders.
Some big names in the hard money lending business may have national branch networks, meaning they have offices in many states.
While these money lenders could sound like a good fit, most of them may have fewer flexible options, and you may find yourself having to reimburse their travel expenses for property viewing visits.
Before settling for such, it is best to know of all charges incurred in acquiring financing to ensure you do not pay too much. If you are unsure how to access a reliable local hard money lender, HardMoneyHome.com is an excellent place to start.
2. Pay attention to interest rates vs. value
The private money lending industry has minimal regulation from the federal reserve bank. That means terms, such as interest rates, approval times and requirements, and the down payment, can vary widely from one lender to the other.
While it is essential to go for the lowest rates possible, you may end up with a bad deal if you focus only on the interest rates.
That is why balancing rates and other lender aspects such as transparency, reputation, hidden charges, and professionalism is important to ensure that you derive value from the deal. For example, if you have a time-sensitive opportunity, you may overlook a slightly higher interest rate for speed.
3. Consider the time of approval
Unlike conventional loans that take up to 45 days to get approved, hard money lenders take an average of one week to approve a loan. Under some circumstances, you may get your loan approved on the same day. This is especially true if you have a history with the lender.
If you are after a time-sensitive opportunity, speed of approval will be a priority. You will want to go for a lender with a reputation for the speedy loan approval in such a situation, and that is where hard money lenders come in.
However, it would be best not to compromise quality for speed. Loans with fast turnaround times can have higher interest rates because of the risks involved. So you may need to verify the rates associated with the quick loans to ensure you are not getting a raw deal. But rates are not all you need to worry about; be on the lookout for extra charges and all other repayment requirements.
4. Check reviews about the lender
Modern clients do not keep good or bad experiences to themselves; they leave feedback. If you are sourcing your hard money lender online, it is essential to check out reviews from their websites or other reputable review sites.
Serious money lenders will have a website where they allow their clients to leave feedback. By checking out prospective lendersโ websites and reviews, you can rule out lenders with a bad reputation and narrow down your list.
If you cannot find reviews for a lender you want to engage, it may be an indicator that they may not be as transparent, and it would be best to avoid such.
Alternatively, you can ask for referrals from industry players in your network. Experienced industry players may have had the opportunity to work with many lenders and are better placed to tell out the good from the bad ones.
5. Ensure they are licensed
The real estate industry sector involves vast amounts of money. Therefore, you will want to avoid dark alley transactions.
A good way to do this is to ensure that they are properly licensed with the state’s housing and real estate department before entering into a deal with a lender. Some hard money lenders may be licensed under the National Mortgage License system or other applicable housing and mortgage organizations.
If you are unsure of a lender’s licensing status, ask them to see their proof of licensing and check if any complaints have been raised against their license. You may want to take your business elsewhere if a lender resists your demands to prove their registration status.
Final words
Hard money lenders are essential players in the real estate sector. They fill in the gap left by conventional lenders in the industry by offering credit to investors that may not have an impressive credit record or are looking for quick cash to fund projects.
Getting the right one is equal to getting a business partner. If you are new to the industry and searching for the right fit for your projects, you want to be sure you get it right. Even though the tips highlighted in this post can help you make the right call, you may want to talk to a financial expert or industry player to better understand the hard money lending sector.
