Home Uncategorized Private Lenders-Hard Money Lenders – Do’s and Don’ts

Private Lenders-Hard Money Lenders – Do’s and Don’ts

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Information about how to deal with hard money lenders / private lenders and how the process works with them is quite inadequate on the internet. For this article, I will only use the term private lender, but it can mean either or.

Not many people know how the process works, and not many people even know such lenders exist.

This article will focus on what to do, and what not to do, when dealing with private lenders.

Private lenders have very simple lending criteria:

1) Around 65%-75% of the value of the property.

2) No income or credit checks.

3) Money available in fast time frames.

4) High interest rates; 10-15% is the norm.

What NOT To Do:

1) Contact these lenders if you are leveraged more than 75% of the value of your property. If your property is worth 100 000$ and you owe 70-75000 already on your property, it is a complete waste of time to contact these lenders. They lend on the equity of your property.

2) Pay an upfront fee. This does not apply to properties that are far away from the lender, or commercial properties. For most residential properties, a private lender that asks for an upfront fee is merely a person in the fee business, not the lending business. These lenders that require upfront fees more often than not never deliver on their promise of a loan. Fees paid at closing are the norm, fees paid to start the file are fraud.

3) Make false statements about your situation. Private lenders don’t normally care why you are in the position you are in. They lend only on the value of the property. They want to know your situation just to get a feel of the kind of person they are lending to. If you are upfront and honest about your situation no matter how weird or embarrassing it is, you are presented in a better light to the lender. Private lenders often back out of a loan they originally agreed to, when they find out that many of the statements you made to them are false.

What To DO:

1) Shop Around. There are many private lenders out there, shop around for the most honest, lowest fee lender there is. Since they don’t check your credit, you won’t have to worry about your credit score taking a hit.

2) Ask a breakdown of ALL THE FEES on paper. Some lenders won’t tell you in advance what the lending fees will be. Ask them for every single fee you will have to incur in borrowing the money. Typical fees:

-Loan origination fee

-Notary fee

-Evaluation fee

3) Ask about the terms. These are flexible but it is very important to know what the fee for renewing the mortgage will be when the term ends. Normal private lending terms will go anywhere from 3 months to 5 years.

4) Ask about the prepayment penalties. Some lenders will enact prepayment penalties. Meaning if you sign up for a 1 year mortgage term, you will be responsible for an entire’s year of interest. Other lenders are more flexible with this and may not make you responsible for the entire term’s worth of interest.

Borrowing from private lenders is a relatively easy process. Private lenders are extremely useful for funding great real estate deals quickly, or giving you that fast money you need when you have been refused by the banks.

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Source by Olivier Vo

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