Real estate investors often turn to hard money lenders when they need financing for an investment property. Hard money loans are secured by real estate and transition properties from one stage to the next. If you are thinking about getting a bridge loan for your real estate project, be sure to do your research and ask the right questions. Hard money lenders are flexible, but you can find a lot of differences between them.
Below are the most important questions to ask when taking out a hard money loan.
What experience do you have?
Ideally, you want to work with a hard money lender that has done this before and has satisfied clients. Ask about how long the lender has been in the industry, the borrowers they usually work with and what size projects they fund.
Are there any upfront fees to be aware of?
Ask about upfront fees that you need to pay to start the process. This is a good way to learn about hidden fees as well. Hard money lenders often charge appraisal, document and application fees.
How much of a down payment do I need?
Hard money lenders are happy to finance your project, but they won’t finance it all. They want you to have some stake in the project. Your down payment will vary among lenders and your individual circumstances.
What are the interest rates?
Interest rates vary by region and lender. The riskiness of the project may also influence your rate. Generally speaking, interest rates are between 10 percent and 15 percent on bridge loans.
How soon do I need to pay off the loan?
Hard money loans are short-term loans that are expected to be paid back quickly. In many cases, funding is only for 12 to 24 months. However, there are hard money lenders that may offer longer terms, up to five years.
How long does it take to close?
Bridge loans typically close quickly, but it’s still important to ask about your lender’s timeline. Usually, it takes two weeks for financing to be completed, though some lenders can provide financing within three to five days.
Do you have references available?
Not all hard money lenders have references due to confidentiality agreements. However, it’s still worth asking about their relationships with clients. There should be some borrowers who have good things to say about the lender.
When you ask these questions, it opens up the opportunity to build a relationship with a hard money lender. If the rapport feels “right,” this is a good sign that you’ve found a partner to work with. To speak with one of the hard money lenders from First Equity Funding, contact us today.