How can you tell if a private lender is legitimate?

Question

I got contacted by a private lender, but I haven't heard of him or met him. He's not in my local circles. He seemed to know the language and was full of promises.

Are there specific questions to ask to feel out whether he's legitimate or not? How would I know? The private investors I have used have been known in my circles and of the same training and mindset as me and reputable among other investors, so I don't have experience just meeting someone brand new and going in to business.

Chris Mason · Answer

A quick way to rule out a lot of the scammers is just to ask when, appraisal aside, the first dollar goes from you to them. The right answer is "at closing, and not a moment sooner."

Timmi Ryerson · Answer

People who offer loans for you are many time scammers.  They will agree to loan you money then tell you that you need to pay an up front fee of $x for whatever. Some say it is a fee and others say it is insurance.  The point is, that they will take your money and disappear.  These people are getting smarter and now registering their company name in a state.  That gives them legitimacy.  However if you do your due dilligence, lenders who are real must also register with the Credit Service Organization in the state that they have a business entity registered.  Always check to be sure a lender is properly registered.  Finally, insist that any loan be closed either by your lawyer or an escrow company.  Any fees should be paid upon closing as the money changes hands and be supported by legal paperwork.   My rule of thumb is that if it is too good to be true, it probably is fraud.  Beware of people offering too good to be true loans on Linked In.

Jay Hinrichs · Answer

this is sometimes a tough one..

problem with waiting to closing table or closing to see if they actually fund

is you have put up EM that you will lose if you dont' close.. you lose the deal .. your rep gets dinged etc etc.   So be cognizant of that you may run up a deal and see where it goes but protect yourself for these things in case they don't close .

scammers out there and there are TONS especially if they solicited you.... will usually hit you for more money right before close.. with silly requests.. like Mortgage insurance or some other fee prior to funding.. then you pay it and poof they are long gone.

But anyone soliciting you for funding is not a private lender that is someone holding themselves out as a lender... so your free to try to get info on who they are etc etc.

Tim Johnson · Answer

You can ask about their previous completed deals and references.

George Despotopoulos · Answer

@Chris Mason I agree with you in part. A few lenders (private or financing companies) do require an upfront fee, but it's usually sub $500, to cover a few of the expenses to begin underwriting. This usually is paid after you get a term sheet, which you have time to review/ask questions, where it lays out the terms and conditions for your loan to get through underwriting and close. The term sheet should also have language that states the application fee is refundable in certain situations.

I would ask to speak to past borrowers and past deal info. Ask for vendor info. See who they work with. Reputable companies usually work with other reputable companies. See if they can provide you an estimate of closing costs upfront. Ask them about the whole process to get to closing and closing itself. Ask about prepayment penalties. Learn what documents they need from you during underwriting to understand their process better and know what sensitive information you'll have to disclose.

@Bekah Jean can you gives more info on this particular lender. What were the promises? Also, what are your specific concerns. As a borrower mine would be, 1) upfront fee (and whether or not it's refundable and in what circumstances), 2) that i'm not giving sensitive information to a suspect party, 3) that we actually close and my time isn't wasted, 4) that I understand all the terms and conditions of underwriting and the Mortgage/Deed of Trust and Note, 5) Costs to close, and 6) in the lender's experience what are some things that can kill a loan (appraisal coming in at a certain % lower than projected, credit score falling to a certain number, etc etc).

Melvin List · Answer

If they get you to the closing table with the funds you need then I would move forward but only at the closing table with a title company or attorney depending on your state requirements.

Harjeet Bhatti · Answer

Ask for local reference.

How can you tell if a private lender is legitimate?

Most Popular Reply