Be Careful Who You Pick As Your Hard Money Lender
So I’m working on one of my last projects for the year and things couldn’t be more stressful. Besides the softening market, I started working with this particular hard money lender some time last year. This wasn’t an issue at the time because they only funded the purchase, I funded the whole rehab at the time so the problem wasn’t apparent. They came as a referral from my real estate agent. They are based out of state in California which made me feel a bit uneasy at first, but the terms sounded fine over the phone and they charge less interest and points overall from the other lender I considered using.
Terms for Lender A:
- 80% LTV
- 100% Rehab funds financed
- 10-11% interest rate
- 2.5 points
Terms for Lender B:
- 80% LTV
- 80% Rehab funds financed
- 8.5% interest rate
- 0.75 points
The terms look great for Lender A vs B, no doubt. Much less cost overall with points and interest. But Lender B is a hassle to work with! Here’s where the problems are for me:
They have this portal system you login to and have to explain in detail every piece of work being done and provide receipts and they send an inspector out and charge an inspection (hidden) fee each time you request for a draw. They only provide funds for work completed which was a huge change to the lenders I’ve been used to working with in the past who provide draws in thirds or quarters and will still give out draws if you show materials purchased, etc. Draws take time to process so when I’m expecting funds to come in a timely manner to pay people and buy more materials, I’m sort of bottle-necked until they finish their inspection and send the money.
If I had known how much of a headache it would be to work with these guys on the rehab side of things, I probably would’ve stuck with the first lender because I’ve worked with them before and never get hassled like this to get funds I need to finish a rehab!
Would you choose a cheaper price with greater headaches or a more expensive price with relatively little stress?
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