People often have a negative idea in mind when they hear about hard money loans. In movies, hard money lenders are typically portrayed as loan sharks who demand their clients to surrender their property with more value than the amount being loaned. Then, the movie creates a situation wherein the borrower isn’t able to pay the money on time, and aside from seizing the collateral, the lender and his team of goons beat the poor guy up as well.
Fictitious scripts aside, hard money loans and lenders aren’t scary at all, as long as you make deals with the right people. Hard money loans are quite useful, especially if you need a huge sum of money quickly or if your credit scores aren’t desirable enough to secure funding from the bank.
To ensure your hard money loan goes well, here are a few things to look out for when searching for a hard money lender:
1. Get a hard money loan specialist.
Hard money loans are structured differently from the standard type loans you usually get at the bank or a government-backed financial institution. There’s no lengthy review of your background, no credit scores or history necessary, and very little paperwork involved. Instead, you need to bring valuable property as collateral for the loan.
Since the entire process probably isn’t something you will be familiar with, it is better if you choose to deal with a firm that specializes in hard money loans. This way, you can be sure that they know what they’re doing and that they can guide you through the process of securing your hard money loan.
Firms are recommended over individual lenders because they present a more professional approach to hard money loans. That’s not to say you shouldn’t deal with individual lenders, as there are thousands of professional lending individuals that are experienced and skilled enough to handle your hard money concerns. Firms provide a safer background because there’s a better chance of securing a lender’s license for their business than by taking a chance on an individual lender.
2. Only deal with licensed lenders.
As mentioned earlier, it’s ideal to go for a lending firm because you want to deal with a licensed lender. Individual lenders are okay as long as you can secure proof of their Real Estate Broker license before you start any deal.
Licenses allow you to feel safer with the entire ordeal because it means the loan you’re applying for is legal. Many scammers nowadays will try to take away your hard-earned money (or in this case, property) and run away. They take advantage of the borrower’s urgent need for money by presenting an easy deal. Sometimes, the borrower is too enamored with the details that he (or she) forgets to verify important things such as the lender’s license.
When you are in a medical emergency, remember that you don’t just go to any affordable dentist or doctor; you visit a known hospital or clinic because you know they are legitimate and skilled enough to help you. The same prioritization should be given to your finances when securing any loan in general; only deal with people you can trust.
To lessen the risks of dealing with a scammer, make sure that your hard money lender is licensed by their state Department of Real Estate. If they are members of organizations such as the Nationwide Mortgage Licensing System and Registry, it bodes well for their credibility.
The internet also helps you verify information about who you’re dealing with. Once your lender has presented his (or her) Real Estate Broker License, you can use that information to review if any complaints have been filed against him (or her) for previous deals. Most lending firms also put up a website for better client reach, and you can visit their online pages to check for reviews from previous clients. You can also judge a company based on their website, how they represent their brand and which content they use on the internet speaks volumes about the organization.
3. Your lender should be honest and transparent from the start.
In any relationship, it’s best for both parties to be as honest and transparent as possible from the start and in every step of the process. Your hard money loan experience should not be any different Look for a lender who can be honest with you about the things that can happen with the loan. The lender should also show transparency regarding any details you might need to know regarding the loan terms, especially the payment options.
Signing a contract that reflects all the necessary information agreed upon by both parties is an excellent way to strengthen trust and build credibility for both sides. Before signing, make sure you have thoroughly reviewed every piece of information on the documents. Most lenders allow haggling to an extent, so don’t hesitate to inform your lender if you think a particular clause needs to be modified for your benefit.
Many people and firms offer hard money loans, so it’s up to you to make sure you are dealing with the right party. Be diligent and research your potential lenders to lessen any risks involved in the process.