Hard money loans are a useful tool to help borrowers who cannot qualify for a traditional loan for a variety of reasons, including poor credit, pending litigation, foreclosure actions, etc. Like all loans, they do come with a certain level of risk. Hard money lending is different than traditional lending, which is where most of the common pitfalls can be found. Before you dive into this process, here’s what you need to know.
Financing Is NEVER Guaranteed
Right up until you’ve got the pen in hand, ready to sign your documents, a hard money loan can still fall apart. These loans are generally backed by private investors, rather than banks, which means the funds may not be readily available at closing. If an investor changes their mind or something goes wrong at the last minute, the lender may not be able to perform. It is imperative that the borrower do their due diligence on any Lender they begin to work with. A Lender who has a history of failing to fund loans at closing will have a poor reputation within the industry.
To prevent any loans falling apart last-minute, H&O Capital works with a prospective client upfront communicating in detail what will be needed to secure a hard money loan. This is important to both sides, so no one is disappointed. H&O Capital has a stellar reputation and has never failed to fund a loan.
You Didn’t Review or Ask Questions Regarding Loan Terms
Private lenders are hungrier than banks. They aren’t going to hold your hand and walk you through the disclosures. Many are going to do whatever it takes to close the deal. It’s your responsibility to review all loan terms and agreements so that you know what you’re getting into. If you don’t, you could get a bad loan or agree to something you can’t afford.
Working with a reputable company with years of experience in providing hard money loans will help you avoid this problem. It is in everyone’s best interest, the lender and the prospective client, to be forthright on what the loan terms are. No one wins if a client can’t pay back a loan. H&O Capital always outlines and reviews the mechanics of the loan in detail to make sure all parties are clear on the terms prior to closing the deal.
Predatory Lenders Exist
Because these lenders aren’t major financial operations like banks and mortgage companies, they often get away with less regulation and scrutiny. Therefore, some less-than-reputable lenders can slip through the cracks now and then. You can’t just assume a lender is good because they say so.
The good news is that you can prevent most of these risks by doing a couple of things:
- Research lenders thoroughly and remember that if it sounds too good to be true, it usually is.
- Ask questions. If you want more assurance, make sure there is a failsafe in place and ask what happens if things go awry.
H&O Capital Funding has helped countless real estate buyers, sellers, lessees and lessors achieve their goals. Our legacy is unwavering commitment to the communities we serve. Houlihan & O’Malley Commercial Real Estate Services specializes in four distinct, yet overlapping, areas of business: Commercial Brokerage services, Private Mortgage services, Appraisal Services and Advisory services.
For more information on loans that we offer, visit our website.