Hard money loans are great for individuals who require financing through less traditional methods. Prospective borrowers seeking out a hard money lender for the first time may be confused about the qualities to look for in this lender.
So what makes a good hard money lender? This guide will examine some essential background details, qualities, and services to look out for.
1. A Lender Who is Direct
Many hard money lenders do not deal with borrowers directly and instead rely on brokers to serve as an intermediate party. Working with a lender through a broker may not necessarily be a bad option. However, you will need to be prepared to pay a broker fee when working with them.
For this reason, it is best to find a lender who deals with borrowers directly. It is also easier to learn about the lender’s capital sources in such situations. For example, you can learn if the lender is simply a wealthy individual who is lending their own wealth or if they are part of a more prominent firm that is investing their capital.
2. A Lender With a Good Reputation
It is essential to look up the reputation of any professional you intend to deal with in the finance world. However, this can be even more important for a hard money lender. A lender with a poor reputation may rope you in with a special deal but alter the loan terms before closing.
One of the most intelligent strategies before choosing a hard money lender is to ask them for referrals. A lender may consider themselves reliable and trustworthy, but their past clients may tell you otherwise. So be sure to do your research in this area before making your choice.
3. A Local Lender
It can be tempting to go with a hard money lender from a different city or state offering a reasonable rate. However, it is generally best to choose a local lender because it makes the loan servicing process easier. Local enders also understand the local market better, which can be advantageous in many situations.
For example, you may be interested in getting one of your properties under contract and closing it quickly. A local hard money lender will be familiar with the market and the costs associated with finishing work in the associated areas. Therefore, they are better informed and can use this information to decide terms for financing your project.
4. A Lender With Little to No Red Flags
You should always be vigilant for any red flags that indicate a hard money lender may not be trustworthy. For example, any hard money lender with unusually low rates and who asks for money upfront or does not include borrower contribution requirements should be viewed with suspicion.
In this case, you should thoroughly research the lender and see if any other potential warning signs indicate they may be a poor choice. If the red flags keep adding up, it is best to continue your search elsewhere.
The right lender will have little to no red flags and will make up for them by offering great value in other places.
5. A Lender Who Offers Value Rather Than Low Rates
Investors seeking a hard money loan for projects are often familiar with having slim margins. They may utilize different strategies to minimize their costs and boost their profits. However, they may also seek out the hard money lender that offers them the lowest rate for their loan.
There is nothing wrong with choosing a lender with a low rate, but it is also essential to consider other costs or services. Often, hard money lenders with low rates offer poor servicing, which can lead to delays and impact your profits over time.
Instead, it would help if you focused on finding a hard money lender who offers the best value. Looks for a competitively-priced lender who competes with other lenders based on factors other than just their rates.
6. A Lender With a Good Approval Time
Hard money lenders have a reputation for offering loans at a much faster rate than banks. Many lenders process loans within 7 to 14 business days. However, some may process loans in a shorter period, such as five business days.
If you urgently require hard money, it may be wise to seek a lender with a faster approval time. However, it is essential to avoid making this your top priority when choosing a lender.
As mentioned earlier, there are multiple factors to consider when making your choices, such as loan rates, duration, transparency, location, and reputation. Investors should choose a lender with a fast approval time only if they have no alternative.
7. A Lender Who Prioritizes Transparency
Transparency is an essential quality for any lender. The right lender will clearly outline their terms and conditions before asking you to sign a contract.
This approach helps ensure you are informed about what you are getting into before making any commitments. Any lender who attempts to rush you into signing a contract without fully explaining all the relevant details should be viewed with suspicion. So be sure to take the time to understand the loan’s terms before taking the plunge.
Final Thoughts
As you can see, choosing the right hard money lender for your needs can be a research-intensive process. The considerations mentioned above should be kept in mind when you are assessing any potential lender. However, you may still struggle to make the right choice at the end of the day.
If you are seeking a reliable and trustworthy lender with flexible services, you can’t go wrong by choosing DFW Speciality Lending. We aim to understand each investor’s needs and ensure each transaction is handled efficiently and with the utmost professionalism. Please contact us to learn more about our services.
