8 Questions to Ask Your Hard Money Lender

A hard money loan is backed by an asset, such as a house or apartment, and it is usually taken out for a short amount of time. For example, you might need a fix-and-flip loan for six to twelve months while you’re doing up a property that you want to sell, or you might need a new construction loan to build a single or multi-family home. If you want to become a successful property investor, working with good hard money lenders is crucial.

Speak to your lender before you sign up with them and ask them questions about their business and the terms of your loan. It’s best to find out about interest rates and fees, the types of options available to you, and the advantages of hard money loans up front. Today, we’ll have a closer look at the questions you might want to ask your lender.

8 Questions to Ask Your Hard Money Lenders

1. How Much Experience Do You Have?

When you borrow from a hard money lender, you are putting your financial future in their hands. For this reason, it’s always best to go with someone who has experience and a track record of success. Ask your lenders about their backgrounds, so you can figure out whether they have the necessary knowledge to serve you well.

At Turning Point Lending, we used to flip homes before we started providing loans, so we are optimally positioned to understand the needs of a flipping business. We have 35 years of experience in valuation, 14 years of experience in property rehab, and four years of experience in money lending.

2. Do You Have Testimonials or References?

The best people to tell you more about a company are those who have first-hand experience. That’s why it’s always good to Google a lender you’d like to work with and check what past or present customers are saying about them. Do the lenders live up to expectations? Are they transparent and good at communicating? If everyone else had a good experience, it’s likely that you will, too.

You can also ask your lenders for references. This is especially important if you’re new to flipping or constructing homes, or if you are thinking of borrowing a large sum of money. Reputable lenders will be happy to share the contact details of their clients or business partners.

3. What Is My Interest Rate, and What Other Fees Are There?

It’s always important to know how much you will be paying for your loan up front because this affects the kind of profit you can make with your construction or fix-and-flip project. Before signing up with a lender, speak to them about the various options, the interest rates, and the fees. A good lender will be able to explain everything clearly, so there won’t be any surprises later on.

When thinking about the interest rate, it’s important to consider the duration of your loan. At first, 10% might sound like a lot, especially since most traditional mortgages have a rate of around 6-7%. However, a person with a long-term mortgage might spend hundreds of thousands on their debt, which they keep for several decades. In contrast, a short-term investor only holds their loan for six to twelve months, so they might pay as little as 5% of the total purchase price.

4. What Fix and Flip Loans Are There?

One of our most popular products is the fix and flip loan, which is suitable for investors who buy a property, do it up, and then sell it at a higher price. The loan covers a large part of the property’s purchase price as well as the cost of the renovations. Fix and flip projects usually take nine to twelve months, but you might complete yours faster if there isn’t very much to renovate or if most of the renovations are decorative instead of structural.

A good lender will offer several fix-and-flip options. Here at Turning Point, we can offer you the traditional loan, which starts at 10.75% and lasts for twelve months, or the deferred interest program, which starts at 12% and lasts for nine months. We can usually fund 80-90% of your project, although this depends on your situation and the nature of your fix and flip.

5. What New Construction Loans Are There?

Most hard money lenders offer fix-and-flip loans, but there might also be new construction loans, which are designed for developers who are building a brand-new property. If you’re looking to create a one to four-unit building, we can help you fund the construction. Our loans range from $75k to $2 million, and the interest rate could be as low as 10.75%. The term for most of our construction loans is 18 months.

6. Why Should I Use You Instead of a Competitor?

If you’re interested in flipping a property or developing a new building, your local bank won’t be the best place to look for a loan. Banks are often only set up to offer traditional mortgages, which last for 15-30 years and have very specific terms. For short-term projects, you will need to go with a hard money lender who caters to this kind of property investment.

In many areas of the country, there are multiple lenders. Once you’ve found someone suitable, ask them why you should choose them instead of their competitors. The best lenders will show you exactly why they are the best choice. For example, they might be more flexible, offer lower interest rates, have more experience, or have a higher level of customer service than similar firms.

7. Why Should I Borrow Money to Fund My Project?

If you’re a seasoned investor or you have a high net worth, you might be able to fund your entire project yourself, or you might be able to reduce the loan amount, for example by paying 50% or more from your capital. Speak to your lender about this option. They can help you go through your financial situation to determine whether a hard money loan is still the best option.

In most cases, borrowing is better because it can accelerate your investing journey. By using someone else’s funds, you can start several projects at once, or you can get started earlier and without having to save up first. This is a great way to scale your business and make it profitable more quickly.

8. Do I Qualify for a Loan?

People with a solid financial background, a track record of successful flips or construction projects, and a good credit score will find it easy to get a hard money loan. However, we’re willing to work with a range of investors. The best way to find out whether you’re eligible and what rate you can get is to speak to your lender directly. They can pre-approve you, and they can also tell you what you have to do to gain access to the best interest rates in the future.

A new construction or fix-and-flip loan can help you to get your property business started or scale your operations. The best hard money lenders are transparent, so you can ask them important questions about their experience and their projects before you start. Get in touch with us at Turning Point Lending to find out whether you qualify for a hard money loan.