Searching for a HML in Miami

[Davidson Francois]

What are some ways to determine picking the right hard money lender?

[Eric Loya]

@Davidson Francois Good question! Picking the right HML can be the difference of getting a deal funded or not, and even saving a few thousand on costs.

When evaluating hard money, you should focus on 5 aspects. Keep in mind the costs are much different if you decide to fix and flip, or buy and hold - so knowing this exit strategy ahead of a conversation with a lender will make life easier for both parties.

Here's what you should ask:

1) Are you a Broker or Direct Lender, and what’s your estimated loan volume this year?

- A broker is someone who brings your financing request to a direct lender, then adds their fees on top of what the direct lender charges. A broker may have more available resources for funding programs, but it may cost more, take a bit longer to process, and depending on how many lenders view your file, could hit your credit more times than you’d prefer. Direct lenders are straight to the source, which may result in lower fees, will speed up the processing time to close, and preserve your credit score with simply 1 source pulling that information. Knowing how much volume someone does on a regular basis will let you know how much capital they have on hand to lend. The last thing you want are great terms and no money available when you land that next project.

2) What are your rates, and how are they calculated?

- Usually hard money will offer between 7-12% with lower rates offered to those with more experience, better credit, and more capital contributed to the deal.

3) What are your LTV's, (loan to value) and do you lend based % on resale value or purchase price?

- Most lenders will lend between 65-75% of the resale value, and may offer a variation such as 80-90% of purchase price including or excluding rehab costs up to 100%. Each lender is different, so this is an important question to ask.

4) What are the origination costs, and other "junk" fees?

- You can expect between 1-5% as an origination fee - also known as points. Other fees may include appraisal, processing, application, etc - so it's good to know these details up front before you decide on a lender based on interest rate alone.

5) What do I need to qualify?

- Lenders may require a business entity in order to secure lending, some may not. All lenders will want to verify proof of down payment, closings costs, and a variation of monthly interest reserve (3-6 months). Some may require a minimum credit requirement and even US citizenship.

Hope this gives you some ammo when deciding who to work with next!