What is their reputation?
When choosing a bridge/hard money
lender, one of the most important (if not the MOST important factor) is the
reputation of the Lender. Over the past 3-5 years there has been a vast
increase in the number of hard money lenders and not all of them have the
greatest track records.
A great place to begin searching might be to ask friends, colleagues, fellow investors of any Lenders to avoid. With the sheer number of banks/lenders out there, it may be difficult to narrow your search down, but if you know which Lenders to avoid from the beginning, you will have a head start in your search. By the same token, friends, colleagues and fellow investors may already have worked with a lender or two that they highly recommend. The key here is to narrow your search down to a handful of lenders who are known to get deals closed so you don’t waste your time with an unknown commodity.
How long have they been in business?
As previously mentioned, there has
been a great increase in the number of bridge/hard money in the past 3-5 years.
Quite frankly, this just isn’t long enough to develop much of a track record.
As an investor seeking financing, narrowing your search to lenders with 10+ years of experience will help to eliminate some of the riffraff that recently joined the industry. Any lender in business for 10 or more years has developed a reputation one way or the other, which will be easy to determine through word of mouth from friends, colleagues and fellow investors.
What is the availability of their funds to lend?
This is an extremely important
factor to consider. There are countless horror stories of borrowers reaching
the closing table only to learn that their “lender” doesn’t have the funds
available to close their deal. Throughout the search, peruse the various lender
websites to learn what you can about how they operate. There are some lenders,
such as H&O Capital Funding that fund each deal individually from a vast
portfolio of investors. These lenders tend to avoid overcommitting themselves
as they can pull funds from various sources with relative ease.
Many other lenders, however, now operate out of a debt fund, which can be both beneficial and detrimental as sometimes these lenders overcommit and run out of funds before they can close your deal.
What are their terms and rates?
This is an extremely important factor to consider. Be very wary of hard money lenders who are promoting low interest rates. For example, you may see a lender promoting “rates starting as low as 6%”, but once you meet with them, you will see that you only qualify for that rate if you have the credit rating and assets that a traditional lender would provide you and then the only difference between them and a traditional lender is that they can get the funding to you quicker. Bottom line – watch out for hard money lenders who advertise fake rates that are not available in the real world.
People typically pursue a hard money loan because they either don’t qualify for a conventional loan or they need the money quickly. Interest rates for hard money loans range from 8 – 14% depending on the specific lender and the perceived risk of the loan. Points can range anywhere from 1 – 4% of the total amount loaned, dependent on the dollar amount of the loan.
The majority of hard money lenders will require a down payment and a LTV (loan to value) ratio on the property of 70% or less. And the loan term is usually short, i.e. 12 months.
Other things to consider when choosing a Hard Money Lender
Make sure you choose a company that specializes in hard money/bridge loans. Just as business is a broad term, so is finance, and not all lenders are created equal. Especially when financing a risky asset such as an investment property, you want to be sure you are in good and knowledgeable hands. Your lender should have specialized experience in funding a narrow range of assets.
Choose a local company. Whether a hard money lender is local is arguably one of the most important predictors of the quality of their customer service and underwriting principles. The reason is that local lenders should know your real estate market. A local lender not only will have experience providing loans in your market, but they should also more accurately underwrite your asset with your specific market’s activity in mind.
Compare the terms and financial rates of the lenders you have researched. Also, discuss transparency through the loan process.
H&O Capital Funding has been in business for over 20 years and has a stellar reputation among our clients. We offer fast approvals on short-term and long-term loans ranging from $150,000 up to $15 million and have some flexibility on the rates and terms. Our main goal as a lender is to come up with the best solution for each client’s needs in a timely manner.
For more information, visit our website.