How to authenticate hard money lenders

[Jacob Trimble]

My wife and I are trying to get all our financing options together. Currently we have private money (close family and friends) as well as pre-approval from our bank to purchase some investment property. I want to explore into hard money to expand our options and network as far as lending goes. However, I have noticed a great deal of scammers out there that are actually pretty good at looking like a legit company. We understand being weary of unusually low interest rates and we've also been told to ensure that they are able to roll their fees into the loan. I'm wondering what else people look for (Like certain accreditation from BBB) to help authenticate a hard money lender. We would like to use them as an option for the future but I'm having a hard time trusting many of the companies I run into or come across. To better help us what rates, fees, LTV, should we expect to see for a basic fix and flip or BRRRR type of investment in the range of 80-150K? As always we appreciate any insights and advice.

Thanks,

Jake

[Abby Weinstock]

Hi Jacob, there are some really important questions that you will want to ask anyone who you are considering using as a hard money lender to ensure that they are a reliable source of capital:

(1) Are you a lender or a broker? Some businesses will market themselsves as lenders when they are really just brokering the loan. This can be problematic because any commitments they are making with respect to timing and funding are not fully within their control. 

(2) Can the hard money lender provide references? The lender should be willing to allow a prospective borrower to speak to referneces (preferably current ones) so that he can obtain a first-hand account of the experience with that lender.

(3) How long has the hard money lender been in business? You won't want to take a risk with someone who has no proven track record when the need for funding is immediate.

(4) How long does it take to get a term sheet? If a borrower is looking for short-term financing, the time it takes for each step of the process is going to be important. Some lenders may take days to issue a term sheet.

(5) What fees will have to be paid? Make SURE you are not going to end up with any hidden/junk fees on the HUD!

(6) Is there a pre-payment penalty?

(7) How quickly can you close?

(8) Does a third party perform draw inspections? If a third party is responsible for draw inspections, the likelihood incrases of it taking longer from teh time the draw is requested to the time the draw is funded.