Okay, so you came on Scout, made a property listing and now have some interested parties that want to fund your property. Nervous? Don’t be. Here is a set of tips to ensure sure you have a solid plan to make you and your lender profit.

1.    Know how hard money works.

Hard money loans require a tangible asset to secure the loan (to act as collateral). The term “hard money” is typically used to refer to real estate secured loans. The lender determines the quality and amount of the loan based on the value of the property rather than the credit history of the borrower. In many instances, this makes it easier to secure funding; keep in mind, however, that some lenders will check your credit score.

 

2.    Know where the funds come from.

Private lenders fund loans with their own pool of capital. This allows them to make decisions directly without consulting with a third party, such as a loan committee or a bank. Borrowers need to understand the difference between a direct hard money lender and a loan broker. Direct lenders deploy the capital to fund the loan and can decide terms without consulting a third party.  Unfortunately, many loan brokers misrepresent themselves to borrowers as direct lenders when they are in fact just a middle man between the actual lender and the borrower. Take precaution in these scenarios, as it means that the broker has to collect the information and send it on to the actual lender who in turn makes the decision to fund or not. Not only will this create delays in getting a go/no go decision, but it also adds another layer of fees that the borrower will have to pay because the broker and lender will both expect to earn fees from you. Therefore, it’s imperative to make every effort to find out if the lender you’ve considered working with is a true direct lender or a loan broker.  Direct hard money lenders typically impose stricter terms and higher interest rates than conventional lenders in order to protect their investment. Banks do extensive research into the borrower’s past tax returns and bank balances and review all sources of income and expenditures. Hard money lenders focus on the property.  Be aware that hard money lenders are not governed by banking laws, which allows them the freedom to underwrite loans that conventional lenders would reject.

 

3.    Research your lender.

You can often find testimonials and starting terms on the lender’s website. On Scout, you can check the reviews that lender has had from other borrowers and see what kind of properties/deal sets a lender is mainly interested in. Potential lenders will evaluate your character before providing you capital — you should do the same before incurring debt. 

 

4.    Prove your project’s value.

Before meeting with a lender, you should be prepared to prove the value and viability of your property plans. In most cases, you’ll be dealing directly with the decision-maker; therefore, it’s important to show that you understand the in’s-and-out’s of your property and can justify claims about the potential value of your property and the time it will take to reach that point. When applicable, the most important value to prove is the resale value, as that is the most apparent and cumbersome source of capital that pays back the HML Lender. While private lenders require less documentation than conventional lenders, they may still expect you to compile financial statements, especially for revenue-generating properties. While not always necessary to close the deal, a strong credit history is usually indicative of your due diligence habits and will likely influence the interest rate they offer you.

 

5.    Have an exit strategy.

The high-interest rates of hard money loans mean that it is in your best interest is to have a sooner-than-later approach. Lenders will anticipate that you’ve created a structured plan for loan repayment before providing you with capital. Even if your timeline veers off track, being forthcoming during the negotiation stage — especially with deadlines set by your lender — will make them more willing to agree to an extension in the event that you need one. 

If you’re looking for Hard Money Loans, Scout is the only marketplace in the world where borrowers can have lenders look for them. This allows for quality control when it comes to who contacts these lenders as well as 50% faster closing rates for borrowers.

 

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