Financing your properties isn’t always an easy task. Finding the right lender with the right program with the right fees can be a daunting task. To make things worse, there are so many different kinds of programs and types of lenders out there… Hard Money, Private money, Brokers, Banks, Flips, Rentals, etc. Here’s some tips on how to vet your lender…
- What loan products do you offer? Because every investor has different needs, different properties and different locations, lenders provide a myriad of different choices, but they can be confusing. Find a lender that’s willing to take the time necessary to pick the best program for you. Our product selection is focused on flippers and BRRRR investors. If they aren’t willing to do that, move on.
- What are your rates & points? This one’s a tricky one. Why? Because it’s easy to hide fees in the loan so that you don’t see them at closing. What kind of fees? Draw Fees, Wire Fees, Extension Fees, Late Fees, Payoff Fees, Satisfaction & Release Fees, Doc Fees, Underwriting Fees, Application Fees, Fixed Cost Fees, Intangible Fees, etc. The list goes on. Some of these fees are legitimate. Some are just pure profit centers for the lender. When we quote our customers, we provide them with a full break down of everything. We also help estimate the closing costs the title company will charge as well as realtor commissions if it’s a flip. It’s critical to your profitability to know your numbers.
- Can you provide references? Is your lender willing to share past clients that you can talk to? It’s important to know who you’re dealing with and how they do business. Most lenders sound great on the phone, but how well do they perform once the loan is closed?
- Do you work with clients who have imperfect credit? This is a big one. Most lenders pull your credit to make sure your credit worthy. If you’re looking for funding for your construction/rehab projects, look for a lender that doesn’t need that to lend to you.
- What Loan to Value (LTV) do you offer? Hard Money Lenders typically lend in the 65-70% LTV range. Some lend based on appraised value; others lend based on the After Repair Value (ARV). Lenders willing to lend based on ARV will give you more money towards the deal. It’s important to find this out early on. Without this information, you may not plan your closing costs properly and mess up the deal.
- Is there a pre-payment penalty if I pay off early? It’s very common for lenders to have a pre-payment penalty. I’ve routinely seen 3-month pre-pays from many other lenders; including banks. Most of the time, this penalty doesn’t affect you, but it can and should be considered. Every fee and penalty you pay reduces your profits.
- Can I defer any of my payments? This is extremely uncommon and very few of us offer this benefit. Payments are one of the tools that lenders use to keep tabs on the project. Many assume that if they collect payments, that everything with the project is going smoothly. Others just want to keep you involved financially. If you have to make a payment, you’ll give the project more attention and get it done sooner. However, payments have nothing to do with success.
- Will I work with someone who understands my business and projects? Great question. Will you be working with a team who has experience in the industry or just a number cruncher? The best lenders in the industry are in the game too. They know what a day in the life of an investor is; they’re an investor too. The best of us have been investing for a long time and have seen a lot of things. A good lender with experience in the trenches can help you solve unexpected problems quickly and often time for less money. A good lender doesn’t just bring money to the table, they bring experience and resources/contacts too. A good lender is a financial partner in the deal. A good lender can be invaluable.
- Do you offer pre-approval letters that I can submit with my offers? We all know that cash is king, but we don’t all have an unlimited supply and need to finance properties. In today’s hyper competitive market, every edge you can get is critical. Being pre-approved shows that you can close as promised; that’s a strong message to the seller. If you were the seller, which offer would you take? The one without a pre-approval or the one with?
- How long does it take to get my deal funded? Time is of the essence in today’s market. A good lender should be able to get you approved in no more than 2-3 business days; if they require an appraisal, it will take a lot longer. It’s important to note that your lender needs your help to get it to the closing table. You must make sure that you’re providing them with the required documents they need in a timely manner. The faster you provide those docs, the smoother the closing process typically goes. You can also close quicker when you do repeat business with the same lender as they can reuse docs you’ve already provided. This makes for a much more efficient closing; something we all want.
To maximize your success as an investor, it’s important to find the best lender for your investment style and needs. If you need help with any of your projects, please reach out Best REI Funding to see how they can help.