Hard money loans are typically the preferred method of real estate funding for house flipping investors. However, not all hard money lenders are suitable for beginners just getting started in the business. For less experienced house flippers, it’s key to look for a lender that can meet their unique needs and help them to achieve success with their flipping project.
These are a few of the most important factors that first-time investors should consider when choosing a hard money lender:
What Hard Money Lenders Do
Hard money lenders are asset-based lenders that lend funds for real estate purchase and renovation based on the value of the investor’s home. The funds provided by hard money lenders are usually sourced from private investors, which usually means the borrower can benefit from more flexible loan terms.
Unlike traditional mortgage lenders, hard money lenders have less stringent requirements for borrowers. As a result, they are able to get the funds to the investor much faster than traditional lenders can. This also includes the approval process that can be lengthy under normal circumstances. With a hard money lender, on the other hand, loan approval can be one online with funds granted in under 7 days.
Look For An Experienced, Local Lender
It’s important for first-time house flippers to vet hard money lenders carefully before getting started with one. The first step is to look for a hard money lender with experience in the area you are planning to flip in. Hard money loan origination can be a complicated thing and it’s best to work with a dedicated hard money lender with previous reviews from other borrowers.
The reason why it is good to focus on lenders that are in your area is because your lender may want to inspect the property in person or do an appraisal before granting the funds. There are lenders that operate nationwide, but they may not be able to offer the same rates or advice that a new house flipper will need.
Focus On Transparency
If the terms of the loan that the lender offers are not clear, the chances are good that it’s not a good fit for the first-time real estate investor, One of the keys to successful real estate investing is having transparency with your vendors, and that includes your hard money lender.
Make sure that the lender you have selected has all of the loan data accessible, and that they have a reputation for having and following clear loan guidelines. Stay away from lenders that advertise rates that they do not actively use in lending situations.
Confirm Licenses
As an additional safeguard against fraud, it’s important for the borrower to confirm that the hard money lender they are working with holds a license from the Department of Real Estate in the relevant state. Investors can also check whether these lenders are registered with the Nationwide Mortgage Licensing System and Registry.
Apart from making a phone call to these departments, you should do a careful read-through of the lender’s website and other online presences like LinkedIn. Read their prior reviews, see how big their following is on social media, and make sure you have all the facts straight before taking out a loan with them.
Determine Your Goals And Needs
Not all hard money lenders cater to the same types of real estate. Some lenders specialize in foreclosures, while others prefer to mainly fund commercial properties.
When you are planning to approach a hard money lender with a flipping project, it’s good practice to think about your investment goals and needs first. Part of your loan application will be to provide the address of the property, disclose any critical deadlines, the purchase price, and other details.
Hard money lenders can vary greatly, and not all of them will be suitable for first-time house flippers. If you’re planning to work with a lender of this nature without having done so before, it’s important to do your homework and make sure the lender you choose has the right experience, loan programs, and the ability to cover your investment needs effectively.
New borrowers should have all their investment information such as the prospective property they want to buy and all the relevant details.