Master the Art of Hard Money Loans: What to Know Before You Meet with a Hard Money Lender

Hard money loans are an alternative to traditional bank loans and a valuable financial tool for real estate investors.

The world of hard money loans may seem intimidating at first, but with the right guidance and preparation, they offer a unique opportunity for individuals seeking alternative financing options.

Here’s what you need to know before you meet with a hard money lender to discuss hard money loans.

Make sure you understand the basics of hard money loans

Hard money loans are asset-based, meaning the lender is more focused on the value of the property—the collateral—than the borrower’s credit score or financial history.

This shift in perspective makes hard money loans an attractive option for borrowers with less-than-perfect credit or those who are self-employed and may have difficulty obtaining traditional bank loans.

Interest rates

Interest rates will often be higher than those on traditional loans, as they are considered a higher risk. However, the shorter loan terms often mean that borrowers will pay less interest overall.

Loan to value (LTV)

Loan-to-value (LTV) ratios on hard money loans are generally lower than those on traditional loans to ensure lenders can recoup their investments. LTVs range from 60% to 85%, depending on lenders and specific loan terms.

Loan terms

Hard money loans are not usually meant to be long-term financing solutions. A fix and flip or bridge loan is typically 12 or 24 months and a DSCR loan is a 30-year fixed-rate loan.

Exit strategy

A clear exit strategy should be in place before obtaining a hard money loan—some examples include:

• Refinancing with a traditional loan
• Selling the property
• Renting out the property

Know the advantages and disadvantages of hard money lending

There are several advantages to hard money lending:

• The speed of approval and funding; 3-5 day close times for fix and flip loans and 2-3 weeks for DSCR loans
• Flexibility in loan terms
• The potential for borrowers with unconventional income sources to obtain financing

Additionally, hard money lenders will often have more industry-specific knowledge and experience than traditional banks—especially beneficial for real estate investors or developers.

Preparing to meet with a hard money lender

Before you meet with a hard money lender, it’s essential to:

• Have a clear picture of your financial situation and goals
• Gather any relevant financial documents, such as tax returns, bank statements, and credit reports, to provide a comprehensive picture of your financial health
• Research potential hard money lenders and their loan terms to get a sense of the market and what to expect
• Be prepared to discuss the specific project or investment opportunity for which you seek financing—details about the property, construction plans, and projected timelines for completion and repayment

By providing a comprehensive overview of your financial needs and goals, a hard money account executive will be better equipped to help you navigate hard money lending and identify the best options for your situation.

Key questions for when you meet with a hard money lender

To ensure a successful experience with a hard money lender, ask the following questions:

• How quickly can you close?
• Can I use my LLC for the loan?
• What are the interest rates and fees associated with your hard money loans?
• What are your hard money loans’ typical loan-to-value (LTV) ratios?
• Any prepayment penalties or exit fees?
• What is the typical loan term, and what are my options for repayment?
• Can you provide references or testimonials from clients who have successfully used hard money loans?

By asking these questions, you can gain valuable insight and determine whether it’s the right fit for your financial needs and goals.

Evaluating different hard money lenders

Apart from inquiring about interest rates, fees, and loan terms, it would help if you read reviews or testimonials from past clients to ensure they have an overall track record of success and reliability.

Verify that the lender is licensed and in compliance with any applicable state or federal regulations. You can look up their NMLS number on Zillow, Bankrate, or other databases to read their reviews.

A licensed lender can provide additional peace of mind and ensure that you’re protected throughout the lending process.

Finally, consider the lender’s responsiveness and communication style. A good lender should be readily available to answer questions, provide updates, and address any concerns you may have.

A strong working relationship with your lender can make the hard money lending process smoother and more enjoyable.

Are you ready for a hard money loan?

Hard money lending can be a valuable financial tool for those seeking alternative financing options for real estate investments, construction projects, or bridge loans between traditional financing.

At Park Place Finance, we offer hard money loans for all your residential real estate needs.

Our team of loan professionals has the experience to help you find your financial solutions. Get the property you deserve, whether you’re a beginner, an expert, or somewhere in between.

With competitive interest rates and quick close times, you’ll close on your property in days and will be on your way to turning a profit.

Contact us today at 866-407-1599 to discuss your financing options.