Hard money loans work great for fix-and-flip properties and provide access to cash more quickly than traditional loans do. If you want to avoid any less-than-ideal situations and get the most from your loan, you should know what questions to ask your hard money lender first. These questions will also show the lender that you’re serious about doing business and that you know what you’re doing.
How Much Experience Do You Have?
Working with a first-time lender won’t necessarily be horrible, but finding someone with experience in financing and distributing hard money loans does help. Because hard money loans are different than traditional mortgages or other loans, you need a lender who understands all the rules and regulations to avoid missteps and errors throughout the process.
What Loan-To-Value Ratio Will You Offer?
The loan-to-value ratio (LVT) on the property depends on the purchasing price or the value of the home after you make repairs to it. Ask your lender how they plan on calculating the LVT and an estimate of how much they can offer so that you can make a better decision.
What Are the Interest Rates and Other Fees?
Interest rates are typically higher for hard money rehab loans because there’s a quicker turnaround time for receiving cash. Ask the lender what percentage of interest they would like back on the loan and if there are other fees, such as origination or application fees, that you’ll need to pay before acquiring the entire loan.
When Will You Fund the Loan?
The point of using a hard money lender for fix-and-flip properties is that the funds will reach you in a shorter amount of time than other loans. Ask your lender about the timeline for receiving the loan so that you can plan your project accordingly.
How Do You Handle Repayments?
How you plan on repaying your loan plays a huge role in what lender you choose because it will affect the speed at which you must work and how you’ll handle your budget. Make sure you understand the terms for repaying the loan to avoid issues once the project is underway.
When you’re acquiring a loan, it’s best to come to the meeting prepared with questions for your hard money lender so that you can fully understand the terms of the agreement. Talk with multiple lenders to get a feel for each before you choose someone to work with. A reliable, hardworking lender will ensure the process goes without a hitch.