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If you’ve found a property that you’re interested in purchasing, the next step is finding a private money lender to finance your investment.
Private money lenders are either a company or an individual that loans money secured with a deed of trust or promissory note. This loan is then used to fund a real estate transaction.
If you’re ready to move forward and get the funding you need, here’s what you need to know about finding a private money lender that you can trust:
Look for Someone Credible
The most important thing to take into consideration when searching for a private money lender is their credibility and experience. There are many lenders out there to choose from, but only some of them can be determined as such. Start by checking out the background of the lender in question.
Look up the length of time they’ve been in business and the reputation they’ve built in that time. Find out how many customers they’ve serviced over the years, and what their customers have to say about them. You can usually find reviews online, just be sure to check out non-biased reviews, not just the glowing reports that the lender will post on their personal website.
If you can, get some recommendations from trusted friends or colleagues who can point you in the direction of a lender they trust.
When looking for a hard money lender, look for one who specializes in the right area of expertise for your needs. Some lenders only deal with residential hard money loans, others offer loans for both commercial and residential properties. Pick a lender that specializes in the property type that you’re hoping to finance.
When working with private money lenders, deals can be closed more quickly than when dealing with a bank. As a borrower, you need the lender to be responsive so you don’t lose out on a property or opportunity because they take too long to respond.
A reliable private lender will get back to your calls and emails the same business day and be able to close your deal in a matter of days rather than weeks.
Your lender should never make you feel like a bother or rushed to make a decision. Find someone that respects your financial goals and limits and is willing to do what they can to help you achieve the desired results.
You want to make sure you’re aware of everything that’s going on throughout the loan process. A trustworthy lender will keep you informed while adhering to state rules and regulations. Transparent lenders answer all your questions clearly and keep you involved. Transparency enables borrowers to make a well-informed decision regarding their personal finances.
Consider the Application and Approval Process
After you’ve found a reputable lender with plenty of experience in their sector, it’s time to take a good look at the application and approval process. If you’re in the market for a private money lender, chances are you don’t want to opt for a loan with a long application process and lots of paperwork.
Seek out a lender with a swift application and approval period so you can either move forward with them or look for a different lender without wasting a lot of time waiting.
Be Aware of the Interest Rates
Before you sign any loan agreement, make sure you’re aware of the lender’s interest rates. You might want to do some shopping around to find a lender with the best interest rate that is also willing to lend you the money.
Steer clear of lenders with interest rates so high that, compared to the money they’re lending, might not make the loan worth it in the long run. It will take some research on your part to compare the lenders, but doing so will save you money over time.
Choose a Private Money Lender That Offers Flexibility
Another important factor to take into consideration when choosing a lender is their flexibility. Keep in mind that most private money lenders are lending the money on a short-term basis with the expectation that the loan will be paid off in a timely fashion.
But before you come to an agreement, make sure that the payment plan is one that you can realistically work with. Find one that is suitable for your financial needs and avoid those with payment periods that you know will be difficult for you to stick with.
A lender probably won’t provide you with a lot of documentation about your loan agreement, but you still need to have the right documentation in your possession. These documents might include the terms and conditions of the loan, a trust deed or property deed that can be enforced legally, or a promissory note.
It’s mandatory by law that lenders check all the documentation to make sure it’s in order beforehand, but you have a personal responsibility to see to it as well.
Discover Other Useful Tips
These tips on what to look for in a private money lender should help you with your real estate ventures. Be sure also to check out our large collection of articles regarding business and finance matters.
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