BiggerPockets

Tips for Hard Money Borrowers

Monday, December 27

 

Here are some tips for building a good relationship with a Colorado hard money lender - or any lender for that matter.

1.  Be up front.
Don't hide things.  It is imperative that all issues that could materially impact the transaction (credit issues, title issues, timing issues, legal issues, etc.) be disclosed up front so they can be dealt with.  Hard money lenders want to make loans but need borrowers to be up front in order to do so.  Somewhere in the due diligence process all the the key information will surface anyway.  If there is an issue that will kill the deal, why not find out early and save everyone's time? 

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2.  Make claims that are verifiable.
Hard money lenders will perform due diligence and will verify key pieces of information.  Don't get put in the awkward position of having to explain why information you provided didn't check out.  It will definitely cast doubt on the validity of other claims and, at a minimum, slow down the process.

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3.  Be clear and definitive in your loan request.
Hard money lenders are no different from any business professional.  They do not like uncertainty, so don't change what you want or need in the middle of the process.  Be clear and definitive from the outset. 

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4.  Follow through on your commitments quickly.
Following through on your commitments quickly indicates to all involved that you are on top of your game, the type of borrower with whom a lender wants to do business.  Above all, don't commit to do something tomorrow and then delay in getting it done until days later.

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5.  Be careful about shopping your loan request too much.
Calling everyone you can find in order to find the best deal may actually work in reverse.  Many good lenders and brokers will simply stop working on a deal if they discover it is being excessively shopped.  The thinking being is that there is probably something wrong with it, and their time can be better spent working on other requests.  Don't lose a good deal by continuing to shop for that better deal.  Find a good lender and let them work for you. 

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6.  Be careful when it comes to up-front fees.
While it is not unusual for legitimate lenders and brokers to ask for a small good-faith deposit or require up-front money for third-party due diligence expenses (appraisal, legal, environmental), be careful when asked for a large non-refundable deposit before being issued a firm, written loan commitment.  There are a few people out there masquerading as lenders who never intend to make a loan and are simply in the business of collecting fees.  They are usually offering rates and terms too good to be true. 

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7.  Sell your deal.
Be honest and straight forward but accentuate the positive.  Give the lender some solid reasons to make you a loan.  However, sell with facts and not with hype and emotion.  The more compelling your story, the better your chances. Create a written executive summary or have one created for you. In addition to details regarding the property, include your exit strategy, your experience, your strengths, information on other members of your team, references, etc.  Look professional.  Use correct grammar and spell check.

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8.  Give yourself plenty of time.
No one likes to be rushed.  Lenders are no exception.  Can hard money loans be closed overnight like some ads say?  Sure, but on rare occasion when the stars are aligned.  Realistically, it will take 2 weeks or more for a lender to properly underwrite, document and close a loan today.  Since the real estate bubble burst, most lenders and investors are cautious and are taking plenty of time to carefully evaluate every transaction.

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9.  Have a well thought out exit strategy.
Relationships of any kind are often much easier to get into than get out of.  The lender-borrower relationship is no different.  For your own mental and financial health, have a realistic plan to comfortably repay the loan when due.  This will be important to any reputable hard money lender.  They want to lend money not own property through foreclosure. 

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10.  Keep focused on the end result.
Think of hard money as a means to an end, not a long-term solution.