Hard money loans provide quick financing for real estate investors and contractors taking on flips, rehabs, new constructions, and commercial projects. However, these short-term, asset-backed loans involve higher costs and stricter terms than conventional mortgages. Asking the right questions upfront ensures you choose reputable hard money lenders offering ideal loan structures for your needs and navigating the process smoothly.
1. What Are Your Rates And Fees?
Rates, points, and fees vary widely between private lenders. Compare APRs, interest rates, origination/broker fees, and added charges. Note if rates are fixed or adjustable. Account for total borrowing costs. Ask about associated title and appraisal fees. Probe the competitiveness of their rate structure to identify potentially lower-cost options when evaluating Nashville hard money lenders or those in your locale.
2. What Loan Amounts Do You Offer?
Every lender has different minimum, maximum, and average loan sizes for risk tolerance and capital availability. Make sure a lender’s offered loan amounts fit the scale of your project from minor flips to major developments. Ask if the lender handles both small balance loans and larger seven-figure commercial financing should your needs evolve.
3. What Loan Terms Are Available?
Hard money loans typically have much shorter repayment timeframes between 6 months to 3 years versus 15-30 years for conventional loans. Inquire if the lender offers interest-only terms or requires a principal paydown. Know when the full loan balance comes due and the process for extensions if projects run long Factor the loan term into planning construction timelines and exit strategies.
4. What Properties Do You Finance?
Some hard money lenders specialize in residential flips and rehabs while others focus on new construction or commercial developments. Ask if the lender finances your specific planned property type and project. Contingencies for mixed-use, rural or condemned properties may exist too. Ensure the lender’s niche aligns with your investment.
5. How Quickly Can You Close Loans?
Speedy closing is a huge advantage of hard money loans. Ask lenders how soon from the application they can fund approved deals. Industry averages range from 5 to 15 business days. The more prepared your application and documents are, the faster diligent lenders like Anchor Loans can close to meet urgent project timelines.
6. How Much Renovation Experience Do You Require?
Lenders have varying policies regarding the renovation experience needed for loans involving construction. Many want demonstrated experience and proof you have successfully completed similar past projects. First-time flippers may need a partner with more experience to qualify. Ask about alternatives like the use of licensed contractors if your experience is limited.
7. What Is Your Application Process?
Break down the full loan application process including documentation, timelines, credit checks, appraisals, approvals, and closings. Many lenders provide pre-qualification letters outlining proposed terms to secure financing before final underwriting. Understand how long each step takes and the costs involved to keep your project moving efficiently.
8. What Loan-to-Value Ratios Do You Offer?
Ask about typical LTVs offered on purchase and construction to determine how much cash or equity you need to cover down payments and skin-in-the-game requirements. Expect LTVs of 60-80%. Lower LTVs require more owner equity but offer better terms. Higher LTVs require less cash down but have higher costs.
9. How Do You Handle Draws And Inspections?
Find out protocols for securing construction draw payments to cover materials and labor during renovations, including what documentation and inspections are required. Know inspection frequency and turnaround time on approving draw payments. Slow or overly complicated draw processes create frustrations for contractors.