The following tips on how to borrow money apply when looking to obtain a loan from a hard money lender, or a conventional lender for that matter.
Be up front.
Don’t hide things. It is imperative that all issues that could materially impact the transaction (credit issues, title issues, timing issues, legal issues, etc.) be disclosed up front so they can be dealt with. Hard money lenders want to make loans but need borrowers to be up front in order to do so. Somewhere in the due diligence process all the the key information will surface anyway. If there is an issue that will kill the deal, why not find out early and save everyone’s time?
Make claims that are verifiable.
All lenders will perform due diligence and will verify key pieces of information. Don’t get put in the awkward position of having to explain why information you provided didn’t check out. It will definitely cast doubt on the validity of other claims and, at a minimum, slow down the process.
Be clear and definitive in your loan request.
Hard money lenders are no different from any other lender or business professional. They do not like uncertainty, so don’t change what you want or need in the middle of the process. Be clear and definitive from the outset.
Follow through on your commitments quickly.
Following through on your commitments quickly indicates to all involved that you are on top of your game, the type of borrower with whom a lender wants to do business. Above all, don’t commit to do something tomorrow and then delay in getting it done until days later.
Don’t shop your loan request too much.
Calling everyone you can find in order to find the best deal may actually work in reverse. Many good lenders will simply stop working on a deal if they discover it is being excessively shopped. The thinking being is that there is probably something wrong with it and their time can be better spent working on other requests.
Be wary when it comes to paying up-front fees.
While it is not unusual for legitimate lenders to ask for a small good-faith deposit or require up-front money for third-party due diligence expenses (appraisal, legal, environmental), be careful when asked for a large non-refundable deposit before being issued a firm, written loan commitment. There are a few people out there masquerading as lenders who are primarily in the business of collecting fees. They are usually offering rates and terms too good to be true.
Sell your loan request.
Be honest and straight forward but accentuate the positive. Give the lender some solid reasons to provide you with a loan. However, sell with facts and not with hype and emotion. The more compelling your story, the better your chances. A great move is to create a written executive summary or have one created for you. In addition to details regarding the property, include your exit strategy, your experience, your strengths, information on other members of your team, references, etc. Look professional. Use correct grammar and spell check.
Give yourself adequate time.
No one likes to be rushed. Lenders are no exception. Can hard money loans be closed overnight like some lenders tout? Sure, closings can happen quickly, but on rare occasion when the all the information required by the lender is immediately available and there are no sticky issues to investigate and resolve. Realistically, it will take a few days for a hard money lender to properly underwrite, document and close your loan. Conventional lenders will likely need a few weeks. Lenders are prudent and will take sufficient time to evaluate your request.
Have a clear and realistic exit strategy.
Relationships of any kind are often much easier to get into than get out of. The lender-borrower relationship is no different. For your own mental and financial health, have a realistic plan to comfortably repay the loan when due. This will be important to any lender. Lenders want to lend money not own property through foreclosure.
Keep focused on the end result.
Think of hard money as a means to an end. Follow these tips for borrowers and don’t get frustrated or impatient. Work diligently and methodically through the process, and you will be rewarded.