Hard Money Loans: Easy Answers To Hard Questions

Post-crisis traditional mortgage and home equity lending is of no help when money is needed fast. That is why many people turn to non-traditional loans backed by real estate, commonly known as hard money loans. For many this seems to be the only option at a time, despite higher interest rates, points, and lesser loan amounts. Many people, not accustomed to dealing with hard money lenders, have many questions that they have no answers for. Below are some important must-do things necessary to ensure positive borrowing experience.Do Not Forget To Ask If The Lender Is LicensedAlways make sure that your hard money lender has a state license. License is always a proof of reputability and history of complying with guidelines set by government. Being similar to banks, while not being so closely monitored by government officials, hard money lenders have to have a license. While license is not a panacea, it is definitely an added layer of protection from illegal lending and scams.Always Perform Due DiligenceChecking your potential hard money lenders is important no less than checking any other business you are planning to deal with. Many people think that since they are to be the recipients of the loan, the lender experience, reputation, and connections are of lesser importance. Always check how long potential lenders have been in business, how experienced the employees are, and what their funding sources are. Collect any references they may have. Such background check may ensure you will get the best deal possible.Check Your Local Real Estate MarketWell, real estate market is doing badly nationwide; however some areas are better than the others. This is quite important, since generally the better the market is, the lower interest you may get on your hard money loan. Sometimes this difference may be as high as 10 points on your annual percentage rate. Therefore, make sure you know what you may be facing in advance.Try To Deal With a Reputable Broker, Or, Better, With Direct Money LenderIt is always better to get straight to the source, saving money by eliminating any middlemen. While this may not always be possible, it is highly advisable to look for direct money lenders first. Should you find a few, choose the one that is most reputable. Should your direct money lender search bring no results, it is time to look for a broker. Knowledgeable and competent brokers are as not easy to find, as you may think. Therefore, do as much research as possible before making a selection.Always Read The Fine PrintHard money loans mostly feature an extensive fee structure, besides interest rate itself. They usually come loaded with points, sometimes as high as 4-8, and heavy prepayment penalties. While these may be tolerable if you intend to keep your hard money loan for a full duration, they are true money wasters once you decide not to keep your loan for a full term. If that sounds like your situation, and you only need the money for a short period of time, then proceed with caution: always try to find lender that charges minimal points and prepayment fees, if any.