How to choose lenders

Question

Hi,

I am new in Real Estate investment. I am looking for a rental property and I need to borrow some money. I have some questions/concerns. What can go wrong during borrowing money from private lenders or hard money lenders? What should I look for in a lender?

I talk to one lender, but their site seems shady.  There is no information about the company on their website and the pictures of their references are stock photos. Now I don't know who I can trust lenders and what are the possible ways that I may go into a wrong deal? I appreciate your comments! Thank you.

Ken Vesely · Answer

@Shirin Nam great question.

First thing you should do is make sure that lender is actually a lender, ask them to see HUD's from recent closings (yes some lenders will send them but with the borrowers name crossed out and the prop address crossed out) but you should be able to see the date, amount funded and youll know they are actively funding loans.

Next, ask for referrals, we get that request all the time and I have no issue giving out names/numbers of borrowers that I close loans for as that is my best form of advertising, a satisfied borrower.

Red flags to watch out for

1. asking for money upfront! The only thing you should be paying for upfront is an appraisal and to the appraisal company directly. If you get asked for a "deposit" paid to the "lender" directly, run

2. Being asked to sign a "fee agreement" - lenders don't use fee agreements, brokers do

3. Not being able to get you loan terms on your 1st call! This is a big one, this is how you can figure out who is a lender and who isn't.

Hope this helps, reach out if you want to discuss further

Nate Sanow · Answer

Treat lenders like dating. You owe them nothing just because you spoke to them. Talk to 10-20-30 and track the differences or similarities.

Marcos Gonzalez · Answer

Don't shop for rates, shop for an agent.

https://www.mortgagenewsdaily....

Alex Talcott · Answer

Private/hard-money lenders can be convenient in a time crunch or to go for capital toward rehab, especially for a flip business model.

Conventional and commercial loans from banks will be better rates if you've got the time.

Tracy Tippett · Answer

@Shirin Nam you should consider working with a financing brokerage.  These firms have access to and experience with lots of lenders of a variety of types.  Hard Money or private lenders may not be your best option.  There are multiple levels of financing options ranging from local banks, credit unions, 2nd tier commercial lenders, private investor and hard money lenders.  Additionally, you may want to consider friends and family as alternate sources.  The best thing to do is study all of your options and don't allow any single lender to rush you into a solution that might not be right.

Mike Davis · Answer

@Shirin Nam using a hard money lender, if this is your first project, you will typically pay a higher rate and larger down payment. As you get more project experience, you will start to get more favorable terms when using hard / private money.

Not sure about your background, if you don't own a home yet, look at getting a duplex, live in one side and rent the other side. There is a lot of info on this forum about how to do this.

Alecia Loveless · Answer

@Shirin Nam If you don’t have to go with an alternative form of lending but can use a bank I’d strongly recommend a small local one that is somewhat close to your proposed property that has a small presence, mine has about 35 branches which is as large as I would go. Or a local credit union. These types of institutions have a vested interest in the community and want it improved.

I’ve done four projects with my loan officer in the past 12 months and aside from some requests for documentation from the bank’s underwriting department that I thought were a bit strange the whole process has been easy and not once have they asked for duplicate information everything has just remained in my file and been reused when needed.

Richard Loniewski · Answer

Talk to several lenders, they should be willing to answer any questions you have. Vette them out online (website, referrals). With a legit lender we will not lend on a bad deal which can help you from getting into trouble. There are a lot of scammers out there so be careful and NEVER give any money upfront!

Lucas Miles · Answer

@Shirin Nam reach out to other investors in your area and get recommendations for the lenders they use. Ask the lender what experience lending to real estate investors, and what type of asset classes. Finding a lender that is also an investor is a plus as they understand more of what your doing.

Markis R Kelly · Answer

Local bank normally are the best to deal with especially when they are in the community that you are going to invest in. If you are just looking around I would suggest looking at scotsmanguide.com and using the criteria of what you are looking to accomplish.

How to choose lenders

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