How Do You Vet a Private Lender?

Question

There’s a lot of talk about using private funding for real estate, but not enough discussion on vetting those lenders.

For the experienced investors — what’s your process for verifying credibility and protecting yourself before closing a deal?

This could really help new investors understand the due diligence process.

Charles Carillo · Answer

@Brandon Lee

I believe the first step in filtering out non-lenders and fraudsters is to ask which properties they have recently lent on. Check the land records to see if they were actually the lender.

Be careful with giving upfront money. I have given lenders upfront money for inspections (less than $500) that I verified through other local real estate investors, but be very careful if they start asking for $500+ for some sort of origination fees, etc. Most fees (especially the big-ticket fees) will be deducted from proceeds at closing.

Lastly, locate lenders through local referrals from other real estate investors, who have actually received a loan from them. Real estate agents can be a source of referrals, but I want to speak to an investor who has actually borrowed money from them.

If you get private lender referrals from local investors, verify that they have recently lent on local properties and avoid paying large up-front fees, I think you will filter out most scammers and unprofessional lenders.

Elealeh Fulmaran · Answer

Great question—vet the lender like you’d vet a deal. Ask for proof of funds and past closings, verify entity, licensing if they’re a broker, and check real references you call yourself. No upfront fees to “release” funds, ever. Require written terms before appraisal, wire funds through escrow, and confirm they secure via a proper note and recorded mortgage or deed of trust. Use third‑party escrow and servicing, get a payoff letter template, and have your attorney review docs. If anything feels rushed or vague, walk. Your credibility is your first line of defense—clear story, clear numbers, consistent updates.