How to vet hard money lenders

Question

I know a quick google search can lead to a ton of listings and ways to connect with hard money lenders but I know all hml are not created equal. Could anyone give any insights as to how to conduct due diligence on a hard money lender to avoid the scammers and the incompetent? What kind of documentation is reasonable to request from them?

John Thedford · Answer

Beware those wanting advance fees. Many are scammers looking to take your money. The only advance fee to consider would be an appraisal fee. Any other fees would be collected at closing.

George Despotopoulos · Answer

Tyrone,

In terms of documentation it may be difficult as some states require licenses and others do not. You can always ask for their entity name and look them up on a business search to see if they're a registered entity and in good standing with the state.

Also, they should be upfront with their fees and disclose any and all charges to you from them.

It really is just like any other judgment call you make. Get them on the phone or meet in person, talk to them and ask them questions about their process, if they have any referrals, and who their vendors are for things like credit reports, background checks, appraisals, title etc. Ask if you could also speak with any past borrowers and any of the vendors.

Usually a google search will reveal a lot but definitely try to verify anything you may see there.

If anything else comes to mind I'll be sure to let you know!

Curtis Harvey · Answer

I found a few via a google search.  They all have different charges.  Here is an example of what one pre approved me for on a house.

$245,000 Sales Price of the home

$330,000 Comps in the area

$24,500 down payment

11% Interest

3 points on the backend at Closing

$2,200 mostly payments

3% Closing costs

Rehab cost on this one is $40,000

I hope that helps you understand what you can expect.  I have had some say they will not take 3 points out at closing.  You just have to call until you get what you want.  I have not chose one yet, but this is what the ones I have found has said to me.  They want me to get a pre qual sheet so that in the future I do not have to wait and I can just acquire the property on the pre qual sheet.

Curtis Harvey · Answer

@George Despotopoulos Thanks for the information.

George Despotopoulos · Answer

@Curtis Harvey unfortunate! At least you found one you think you could work with down the line. I would find 3-4 lenders I trust and would do business with. Touch base with them ever so often. Even if you have a prospective deal and it's not something you'll likely pursue, reach out to them with the terms to see what they're offering. It's good practice and you can familiarize yourself more with the HML. You'll know what to expect down the line when you're ready to pull the trigger. Also, the HML will be much more familiar with you and it may help matters.

Curtis Harvey · Answer

Thanks @Jesse Tsai @John Thedford for the information. I have spoke to about 6 hard money lenders and they all have different criteria.  I have found one that seems to be ok today, but the property I was looking at is not available anymore. lol

Tyrone Jackson · Answer

Thanks for the responses. @George Despotopoulos  It's a good idea to check with their vendors. @Curtis Harvey thanks for sharing, I have received pre-approval terms from a few vendors and I supposed I will just have to go through the process to see if follow through with expectations. In your case, those numbers do not look like you have much margin left for yourself and with the LTV max they probably have, you would likely have to bring a lot of cash to that deal.

How to vet hard money lenders

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