What's the Most Important Question You Ask a Hard Money Lender?

Question

One thing I've learned working with real estate investors is that most people know to compare rate and points when shopping hard money or private lenders.

The problem is that's usually where the conversation stops.

Some of the biggest costs (and headaches) can come from the questions that never get asked:

• Is there a prepayment penalty?
• Are they a direct lender or broker?
• Do they report to credit bureaus?
• How does the draw process work?
• Is there a draw schedule?
• Are there inspection fees, wire fees, or escrow holdbacks?
• How quickly are rehab draws funded?
• What happens if the project runs longer than expected?
• Are there servicing fees or payoff fees?
• Do you pay interest on the undrawn portion of your rehab budget?

I've seen investors focus heavily on rate while overlooking fees, draw timelines, and loan structure—all of which can have a much bigger impact on the profitability of a deal.

What's one question you always ask a hard money or private lender before deciding who to work with? I'm curious what other investors have learned (sometimes the hard way) that should be on every lender interview checklist.

Steve Garthe · Answer

One question I always encourage investors to ask is:

"What happens if my project goes over budget or beyond the original timeline?"

Every lender looks great when the project goes exactly according to plan. The real test is how they handle extension requests, change orders, additional draws, delayed permits, contractor issues, or unexpected rehab costs.

I've seen investors focus heavily on rate and points, only to discover later that draw delays, extension fees, or rigid policies ended up costing far more than the interest rate difference.

The cheapest loan isn't always the least expensive loan.

For experienced flippers and builders, how a lender performs when a project hits a bump in the road is often just as important as the initial terms.