Sometimes finding the money you need to make your investment work is challenging. This is especially true for those new to investing in real estate. If you’re interested in becoming a real estate investor but need capital to get started, then working with a hard money lender may be an option. However, knowing how to select the right hard money lender for your deal is essential, as they’re not all created equal. Consider these steps when choosing a hard money lender to ensure you protect yourself and your potential investment.
Understand the Hard Money Industry
A hard money loan differs from a traditional loan in several ways. First, you can get funding from a hard money lender more quickly than a traditional loan. This makes it an attractive option if you need to move on a deal sooner rather than later. Another way this type of loan differs from a bank loan is that hard money lenders don’t require a credit score for you to secure financing. For investors just getting into the game, this can be a relief.
Finally, you can typically use the asset you’re looking to invest in as the collateral for the loan, making it easier for new investors to take advantage of incredible deals. With all of this in mind, it’s important to note that hard money loans can also have higher interest rates compared to traditional bank loans. Another thing to remember is the amount of time you may have to repay the loan may be shorter than with other loans, but this will vary by lender.
Research Hard Money Lenders
Before you accept a hard money loan, do your research on lenders. Not all hard money lenders are reputable, so reading reviews from others who have done business with a lender you’re interested in working with can save you from making a poor decision. You can also look at ratings for the lender and ask for referrals from friends and other investors. Make sure you talk to people you trust about the lender before proceeding with the deal.
Ask the Right Questions
Ask your hard money lender pertinent questions to ensure you’re getting the right deal. What are the right questions to ask a hard money lender? Well, it depends on the investment, the lender, and you, but some of the most important questions to consider asking are:
- Where is the money coming from?
- Can you choose your own vendors?
- How long will it take to close?
- What’s required to secure funding?
- How long has the lender been doing business?
- What makes their lending services unique?
You may also want to ask yourself questions before talking to a hard money lender. Consider your goals, how much money you’ll need to borrow, and whether you plan to work with the lender again in the future.
Find a Local Hard Money Lender
Using a local hard money lender is ideal in all scenarios. The reason for this is that it’s much easier to get in contact with them. You’ll sometimes want to meet with the lender to finalize paperwork or ask questions. You can also get a better feel for the lender if you meet with them in person. They can help you understand the market in your area to ensure you’re not purchasing a property in a bad neighborhood or one that’s not worth its selling price.
Watch Out for Red Flags
Some deals are often too good to be true. This is often the case with real estate investments and hard money lenders. You want to be leery of working with a company that seems unsavory or shady. Things you can watch out for that may be red flags or warnings that a company isn’t what it appears to be include:
- Having rates that are too low.
- Asking for money upfront.
- Wanting money wired directly to the lender.
- Requiring no contribution from the borrower.
If any of these things occur during the loan process or you don’t feel right about working with the lender, don’t hesitate to walk away. There are plenty of hard money lenders around who are willing to do things the right way.
Learn About Offered Rates
When it comes to getting a loan to invest, everyone wants to get the lowest rate possible. Low financing rates on borrowed money make the deal seem more attractive. But don’t be fooled by low rates. You’ll want to shop around to find the best possible rate while considering the hard money loan provider. Just because a company offers a low rate doesn’t necessarily make it reputable. It can sometimes mean quite the opposite. With this in mind, know what you can afford before you start shopping for a loan provider.
Consider the Long-term Strategy
Is this your first time working with a hard money lender? If so, consider whether you plan to work with one in the future. Whether you want to work with the lender again may set the tone for how you work together on your first deal. Having a long-term strategy in mind before you get started can help you communicate your goals to the lender, making them more interested in working with you right from the beginning. Knowing that you have a plan and want to continue investing will make the lender more comfortable loaning you money.
Build Your Path to Wealth With Titan Funding
Investing in real estate can be an exciting endeavor. However, following these steps is important to ensure you select the right hard money lender. Contact Titan Funding to get started on your path to building wealth through real estate investment and find out how we can help you achieve your goals. Our knowledgeable and educated team is ready to answer all your questions and guide you through the challenging money loan process so you can move on that incredible deal.
* Featured Image – Background of American dollar banknotes by enginakyurt is licensed with Unsplash License.