Hard Money Lending Questions

[Caleb Johnson]

I am interested in using a hard money lender to buy a property to flip. What are some questions you would ask a lender to vet hard money lenders? Also what are some things you look for in a lender? Do you recommend a local one or does it not really matter? Thank you! 

[Wyatt Ferm]

Quote from @Caleb Johnson:

I am interested in using a hard money lender to buy a property to flip. What are some questions you would ask a lender to vet hard money lenders? Also what are some things you look for in a lender? Do you recommend a local one or does it not really matter? Thank you! 

Hey Caleb, I work as an Account Executive at a hard money lender called Backflip. There has been a lot of great info shared already but here are the main themes you should consider with specific questions for each: 

Loan Terms and Costs

1. What is the interest rate on the loan?
2. What are the points or origination fees associated with the loan?
3. Are there any additional fees (e.g., underwriting, appraisal, or prepayment penalties)?
4. What is the loan-to-value (LTV) or after-repair value (ARV) ratio that you offer?
5. What is the repayment schedule (monthly interest-only, balloon payment, etc.)?
6. What is the typical loan term? Can it be extended if needed?

Down Payment and Funding

1. How much down payment is required?
2. What percentage of the repair costs will you finance?
3. Do you fund repairs upfront, or is it done through draws? If draws, what’s the process for accessing them?

Property Appraisal and Underwriting

1. Do you require a formal appraisal or just a broker price opinion (BPO)?
2. What is your underwriting process and timeline?
3. What qualifications do you look for in borrowers?

Loan Flexibility

1. Are there any restrictions on the types of properties you’ll finance (e.g., location, property condition)?
2. Can the loan be transferred to another buyer if I sell the property before the term ends?

Risks and Contingencies

1. What happens if I can’t sell or refinance the property within the loan term?
2. What are the penalties for late payments or default?
3. How do you handle disputes or issues during the project?

Lender Experience and Reputation

1. How long have you been lending in the fix-and-flip market?
2. Can you provide references or examples of successful projects you’ve funded?
3. What sets you apart from other hard money lenders?

Closing and Timing

1. What is the average time to close a loan?
2. What documentation will you require at closing?

Exit Strategy

1. Do you offer any programs or partnerships to help borrowers refinance or sell the property?
2. Do you have any recommendations for real estate agents, contractors, or other resources in the area?