Questions to Ask When Securing Hard Money Funding
Hard money funding is growing in popularity. This is great news for people wanting to invest in real estate, but for those who are only familiar with conventional funding, there may be a lot of questions currently unanswered, preventing them from going ahead with securing hard money funding. Even if you are somewhat familiar with hard money lending, each project and each company is different, so it is worth getting specific information from a lender.
There is nothing wrong with investigating hard money funding before you start the process. Asking questions is an excellent way to learn the ins and outs of hard money funding, and to ensure that you are completely comfortable working with this type of lender in California.
When you are looking into hard money funding, ask all of the questions you have, from how do hard money loans work, to what your hard money lenders’ rates are. Every question you have is valid and deserves a clear answer so that you can jump into your real estate investment project without worry!
While these are some of the more common questions that come up during consultations, you may find that you have additional, or different, areas of concern. Write down any questions that come to you during the process, and make sure that you are satisfied with the answers before moving ahead. The more knowledge you have, the more confident you will be, which should translate to greater success when it comes to your real estate project.
How Do Hard Money Loans Work?
This is a great place to start, especially if you do not know much about hard money funding.
So — how do hard money loans work?
Your lender in California can walk you through their company-specific process, but generally speaking, a residential or commercial hard money lender will be looking at the value of your potential real estate project in determining whether or not you qualify for a loan. They will not look solely at your finances, assets, or credit. Your loan will be based on the current value of the property, and its projected value in the future.
Whether you are taking on a rehab project, need to bridge a loan between properties, or just need to move a deal along quickly, the lender in California considers the potential for profit and makes a determination based largely on that specific detail.
If you are approved for a loan, the residential or commercial hard money lender will be able to move the money quickly. Generally, you are looking at a matter of days, up to a week or so, versus sitting for months waiting for money to clear from a traditional bank.
Since many people are new to this kind of financing, your money lender will have heard the question: “how do hard money loans work?” many times, so don’t be afraid to ask more as many details it requires to get you up to speed.
What is Your Experience as a Lender in California?
Having fully understood any answers to the question: “How do hard money loans work?” it’s time to focus on how companies provide those loans and what to expect.
When looking for a lender in California, feel free to ask the company in question about its background. You can find out details like how long they have been in business, what types of lending they have done in the past, and what some successful investments have been in the history of the company. Their answers to these questions will give you a good idea of where their area of expertise lies.
Some companies focus more on hard money commercial loans, while others work with residential loans. Still others offer both. By asking about experience, you can easily discover if you are working with an expert commercial hard money lender, a residential loan expert, or someone who can handle all aspects of hard money lending.
The more experienced a residential or commercial hard money lender is, the smoother your experience should be. Do not hesitate to look for a company with a great track record for success.
When looking for a residential or hard money commercial loan provider, don’t be afraid to ask for references from past clients, and/or look for online reviews. If the hard money commercial loan company is focused on customer satisfaction, they should be happy to share good reviews from satisfied clients. If none exist, find out why, and consider moving on to a lender with a better history.
What Are Your Hard Money Lenders’ Rates?
For hard money lenders, rates can vary just as much as they would when you secure a loan through more conventional sources. Your residential or commercial hard money lender likely cannot tell you exactly what your interest rates would be, as it depends on various factors that will become more clear as you get closer to closing on a loan, but you can get a good idea of how much interest you may be paying.
It’s important to note that hard money lenders’ rates are higher than traditional banks offer. Why?
Hard money lenders’ rates are generally higher because of the risk attached to a hard money loan versus a longer term traditional loan. Also, when you get a residential or commercial hard money lender to provide your funds, you are paying for the convenience of an extremely quick turnaround time, which adds to the higher rate.
Will My Hard Money Commercial Loan Come From You?
You might think you are getting a hard money commercial loan from the company you’re working with, only to find out that they are planning to broker it out to another company. It’s usually easier to work with a direct hard money commercial loan company, as it makes the process faster. This may or may not be a deal breaker for you, but it is certainly a question worth asking, so you have all of the knowledge ahead of time and cannot be taken by surprise.
Will There Be Other Fees Involved?
If you have ever closed on a loan before, you are probably familiar with the fact that extra costs and fees seem to pile on at the end. You should feel free to ask your potential lender for a total cost, up front, so that you know exactly how much money is involved. Be aware that you may still need to pay out additional funds to other parties, such as when you are securing title insurance or paying legal fees, that do not involve the hard money lender. These costs won’t appear in the total provided by your lender, but should be considered as part of your personal budget and expectations.
When Will I Get the Funds?
Hard money lenders work quickly, and you can expect to have your money available much faster than you would when going through more traditional forms of funding. However, there is some variance between companies, and the speed with which you will get the loan depends on numerous factors. Your lender may not be able to give you an exact time frame, but they should have a good idea of how much time it will take to secure and transfer the funds. You can also ask for a date at which point the money will be guaranteed to come in, so you have a rough timeline.
We know that speed can make or break a real estate transaction, so we work hard to get loans to our clients as quickly as possible. Let us know what your time frame is, and we will do our best to work within your constraints to make sure your investment process runs as smoothly as it can.
Can You Fund this Specific Project?
There are many, many scenarios in which hard money lending is an appropriate choice, from a fix and flip rehab project, to cases where a client has poor credit but wants to make a real estate investment and has the required capital to back the transaction. Not all lenders fund the same types of projects, so before you get too far into the process, it is important to make sure that your potential lender is willing to fund the specific project in question. You should be able to consult with a lender to go over the details of your plan.
For instance, some companies will only lend money to purchase property, and will not roll any renovation or rehabilitation costs into the loan. Others, like Lantzman, are happy to provide financing for rehab costs. Instead of wasting your time with a lender who cannot meet your needs fully, ensure that your project can go ahead with the lender you want to work with, and don’t lose any time getting things done.
What is the Length of the Loan?
This is, of course, an important aspect of any loan. You will want to find out what the term of the loan is, and if it can be extended. Be aware that hard money loans are typically much shorter than the longer term loans funded through traditional banks, owing to the higher risk for the lender.
You should also ask about penalties for not paying back the loan in the given term. While this is not something anyone wants to deal with, it is something that happens, and you should be prepared by knowing what the cost would be.
You can also find out if there is a prepayment penalty. If you want to pay early, it could impact your loan, so find out exactly what the lender is expecting, whether you are early, late, or right on time.
Do I Need Real Estate Investment Experience?
Some companies prefer to work with investors who have experience in real estate, while others are open to funding anyone who qualifies. If you are new to real estate investment, this is definitely something to ask about, as you will want to work with a lender who is willing to work with you.
If you have experience with real estate investment, and the lender requires it, you are in luck, but be prepared to show your prior work.
You may be able to find out the answers to these questions, as well as other details about your potential lender, by visiting the company’s website. However, it is still a good idea to meet and consult with the lender before moving ahead, so you can get a feel for the company and decide whether or not they are a good fit for your plans.
A hard money lender should be eager to work with you, so long as your real estate investment project is well thought out and determined to be profitable. You should not have to settle for anything less than the best, if your project is worthwhile, so take your time to find a lender who has confidence in you and your plans.
When comparing possible lenders for your project, think about what aspects of a lending company are most important to you, whether it is a very fast loan turnaround, a lower interest rate, or great reviews and extensive experience. The ideal lender, of course, should have all of the qualities you are looking for, but if that is not possible, try prioritizing your list of ideal qualities.
A hard money lender is there to help you find real estate success, and should be more than willing to answer any questions you may have. For lenders, and for real estate investors, the smoother the process is, the better it is for everyone, so getting all of the details ironed out beforehand is the best way to do things.
At Lantzman, we are always looking for great real estate investors to work with, and are happy to discuss all aspects of your project, and all aspects of our lending process. If you come to us with questions, comments, or concerns, we will work diligently to make sure you get the answers you need to make the right choice.
Get in touch with us to start a consultation about your real estate project, whether you are working toward a fix and flip project, purchasing land, or any other investment. With our extensive background and experience in helping people achieve their real estate dreams, we are confident that we can help you accomplish yours.