Choosing a Hard Money Lender- What You Didn’t Know

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Video Transcript

This is Corey Dutton. I’m a private money lender, and in this video, I’m going to teach you how to compare your loan options among various hard money lenders. So you’re out there and you’re looking for hard money. There’s a million options to choose from.

How do you compare hard money lenders?
Well if you’re looking based on price alone you’re making a huge rookie mistake.

A guy comes to me the other day and he’s out there shopping for hard money, and he tells me in the middle of the conversation, “Well, stop right there! Because I’ve already gotten a quote of 10% from another hard money lender. I don’t need to talk to you anymore.” And I asked him, I said, “Well, this guy at 10%, what are his requirements?” The guy says to me, “I don’t know.” And I said, “Well, how much is he going to loan you for the 10%?” He says, “I don’t know.”

This guy didn’t know anything! Not only was he wasting my time, but he was wasting his own time. Don’t waste your time when you’re shopping for hard money!

Know how to compare your options. What I am going to ask you to do right now is to grab a piece of paper. And at the top of the paper I want you to write down, ‘what is your biggest need for this hard money loan?’ And what do I mean by that?

Well, how fast do you need to fund? If fast funding is your biggest need, write that down. If you’ve got all the time in the world to waste, then that’s not your biggest need.

If you don’t have any money to bring into the deal, you’re really low on cash, that’s your biggest need. Finding a hard money lender that’ll give you 100%. If you’ve got all the cash in the world? That’s not your biggest need is it? Or what about your credit?

What if you have bad credit and no income? Well, your biggest need is going to be a hard money lender that doesn’t base an approval on your credit or your income.

So now that you’ve written down your biggest need at the top of the page, I want you to create what’s called a “Decision Matrix.” Look it up online, it’s a chart. Studies have proven that if you write down all your options and have them in front of you, you can make a better decision.

So that’s what I’m going to have you do right now, create a decision matrix.

It’s essentially a chart. And on the left side of the chart, I want you to list all your hard money lenders that you’re shopping with rows in the chart.

And each column in the chart are going to be the various factors that you’re going to use to compare your hard money lenders. So there’s a million factors that you can use to compare your hard money lenders. I’m going to talk about the seven most important factors that you’re going to use to compare your hard money lenders.  So what are these seven factors?

The seven factors to choose a hard money lender
1. Method of valuation,
2. Speed of funding,
3. Requirements of funding,
4. Cash to close requirements,
5. Reviews about the lender,
6. Monthly payments, and
7. Total cost of the loan.

The Hard Money Lenders Method Of Valuation

We’re going to talk about “method of valuation.” How is the hard money lender valuing your property? Are they using an appraisal, and what’s the cost? Are they using a broker’s price opinion, or are they valuing the property “in-house.”

Find out the answer to that question and write it down.  This is extremely important as you’re going to find out here shortly as we go through some of the other factors and comparing.


The Hard Money Lenders Speed of Funding

Now the second factor, the second column, “speed of funding.” Now take this one with a grain of salt. Just because a hard money lender tells you that they can fund in five to ten business days on their website, doesn’t mean that they can actually do it.

And why? Because if a lender is going to require an appraisal as the “method of valuation,” there is no way that the lender is going to be able to close your loan in five to ten days. There’s just no way! It takes two to three weeks to get an appraisal back, in most cases.

Not only that, but let’s say the lender has a long list of requirements. There’s no way they’re going to close your loan in five to ten business days with that long list of requirements. So, although you want to use the speed of funding as a way to compare, take it with a grain of salt.


Requirements of Your Hard Money Lender

Now the third column, the third variable we’re going to talk about is the “requirements” of your lender. What are the requirements? This is the one that is going to require the most research on your part.

You need to find out ALL of the requirements and write them all down so that you’re comparing your hard money lenders properly.

What’s an example? A good example is “Recasa Financial.” They are a nationwide rehab lender and they offer a 100% financing. But the requirements to get that 100% financing are long and arduous.

A good example, let’s say you’re buying the property in the name of an LLC, and your spouse has nothing to do with it, it’s your deal, you’re doing that deal in the name of an LLC. “Recasa Financial” requires that your spouse signs a personal guarantee on that loan!

And if you didn’t read the fine print, and you didn’t read all the requirements and do your research, you might have eliminated all your other hard money lenders and gone with Recasa Financial only to find out that you need a “spousal personal guarantee.” And whose spouse wants to sign a personal guarantee on your business deal? Nobody. It doesn’t make any sense!

So make sure you do your research and find out every, single requirement that the hard money lender will have for approval of your loan.

The Lenders Cash to Close Requirements

And then, the fourth column, the fourth factor that we’re going to use to compare is your “cash to close requirements.” What is the lender requiring you to bring in, what’s your down payment? Or what are your “cash to close requirements?” Know what that is!

Because if this guy over here says he’s offering you a 10% rate, but he wants you to bring 20% down. And this guy over here is offering you a 12% rate with no money down. And your biggest need is no money down? Which lender are you going to go with? You’re not going to go with the 10% lender because you don’t have 20% down!

So make sure that you know what the “cash the close requirements” are for each of the hard money lenders that you’re talking to.

Hard Money Lender Reviews

And then, another factor, another column, “reviews.” Look at the “lender’s reviews.

What are they? If they have no reviews? Think about that for a second! Some of these guys have just set up shop this week and they’re trying to offer hard money loans, right?

If they have no reviews, are you really going to trust that they can fund your deal and give you a good rate? Probably not. Also, the reviews will tell you a lot of things about the lender.

If you do your research and read the reviews you’ll find out, if they say they can close in five to ten business days. A good example, is “LendingHome.” They they say they have a 9% rate to fix and flip investors and they can close quickly. Well, if you read the reviews you’ll find out it takes them about 21 days or more to close.

And if you’ve got to close in 3 to 5 days, that lender is not going to work for you!

So make sure you know what the “reviews” are for each of these lenders that you’re looking into, because if the reviews are bad, or the reviews say something else about the lender, like maybe they’re declining you at the last minute because of some requirement that you didn’t know about? Well you may want to go with another hard money lender.


Monthly Payments of a Hard Money Loan

And then, “Monthly Payments.” Does the lender require monthly payments? Most hard money lenders, YES, they require monthly payments! And if they don’t, usually there’s some other factor that offsets that, like they want a larger down payment, or there’s some other kind of credit requirement that they have, something along that line that maybe you need to do some more research to find out.

Because most hard money lenders are going to require monthly payments. And then finally, “total cost of the loan.” A lender, a hard money lender has interest rate, points, and then “junk fees.”

And if you don’t know what the “total costs” are, for each one of the hard money lenders that you’re comparing in your matrix, you might choose a lender because they have lower points, only to find out that they have a $1,200 underwriting fee, a $500 doc prep fee, a $150 site inspection fee.

And if there is a repair escrow, they’re going to charge you $250 to $300 per draw out of that repair escrow, on and on and on! Those are “junk fees.”

So not only do you want to look at the interest rate and the points when you’re comparing your hard money lenders, but look at all the “junk fees” that are going to be charged to you.

Not only before you get the loan, but after you close on the loan. Because you may eliminate a lender that you think has higher points, not knowing that this other lender over here has quoted you lower points, but has all these other junk fees that are adding up to be a higher cost loan than the other hard money lender over there.

So if you’re out there looking for hard money loan options, make sure you know how to compare among hard money lenders. Don’t just compare based on price alone. Because you are not going to get the right type of loan for your “biggest need.”




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About the author

Corey Curwick Dutton, MBA Park City, Utah - 2005 MBA Graduate with 10 years experience in Business Management including International Management. Corey is a Private Money Lender and Loan Officer. In her spare time Corey enjoys writing on topics in the private money lending industry. She also enjoys hobbies such as mountain biking and skiing in the great outdoors of Utah.