Top 5 Questions to Ask Your Hard Money Lender
Sep 01, 2016
Getting a commercial real estate mortgage can be a time-consuming process filled with uncertainties. Before you start applying for a commercial real estate loan, and regardless of whether you are looking to purchase commercial real estate in New York or refinance a commercial property in Atlanta, Georgia – getting to know your lender is an important way to save yourself time and money.
If you are vetting a commercial hard money lender to get finance for your investment property, most likely you are faced with a time-sensitive project that needs to be funded quickly or you have circumstances that are outside standard lending guidelines; which are both situations where conventional lenders typically cannot help. This may make you feel like you are at the mercy of the lender and their loan process. However, it would help you to keep in mind a couple of facts. One, getting a commercial hard money loan on your property is a two-way street with both parties needing each other. You need the lender for their money but the lender also needs you to borrow their money in order for them to make a profit. Second, there are more than a few hard money lenders available – some who will fit your particular financing needs better than others.
For you, as a borrower, the question then becomes, “How do you choose the right hard money lender?”
Unfortunately, most borrowers do not know what to ask a prospective commercial lender as they are searching for a loan that fits their needs. More often than not, they simply wait for the commercial lender to request information from them and act accordingly.
To alleviate that situation here are the top 5 questions a borrower should ask a hard money lender.
1. How will my Credit affect my loan application?
First and foremost, you need to know that not every hard money lender is the same. But that being said, most hard money lenders do allow their borrowers to have lower credit scores than what banks require. Of course what that credit score level is depends on each private lender. However, know that typically credit blemishes can be overlooked with the right story and loan request circumstances.
There are also asset-based commercial hard money lenders, like Riverdale Funding that are primarily concerned with the value of the commercial property being offered as collateral. With Riverdale, all credit scores are accepted and no financials are required as part of the underwriting process.
2. Does this commercial hard money loan have any prepayment penalty?
There are hard money lenders that insert prepayment penalties into their loan terms. On the other hand, many private lenders do not have prepayment penalties for early payment of their loan. Having no prepayment penalty is especially useful for real estate investors who are utilizing hard money loans to fix and flip a property or have a short term need for capital infusion.
3. What are the borrowing requirements for a commercial hard money loan?
Again, each hard money lender is different and they all have their own set of lending requirements. Depending on your situation and financing needs there are hard money lenders who require the borrower to be credit and financially strong, while accepting risker property circumstances. On the other side of the token, asset-based commercial hard money lenders are not very concerned about a borrower’s financial and credit standing. This type of lender is primarily interested in the value of the property being offered as security for the loan.
It would be good to note that the more risk a private lender has to assume from their borrower and the property being financed, the higher the cost of borrowing will be. Borrower’s should understand that fact as they evaluate and compare traditional lenders versus hard money lenders and private money lenders against other private money lenders.
4. What is the term of your commercial loan?
The typical commercial hard money loan offers terms of 1-3 years. On a case-by-case basis, hard money lenders have been known to offer longer terms. Of course, because the cost of money associated with private lenders is higher than conventional lenders, it would be wise for a borrower to have an exit strategy and timeline in place to pay-off or replace the hard money loan.
5. How fast can you close this commercial loan?
Unlike conventional loans that can often take weeks, if not months, commercial hard money loans can be closed in a matter of days. For the right projects, hard money lenders can be very accommodating to a borrower needing a fast closing.
Commercial lenders that have their own source of capital and can make lending decisions in-house, like Riverdale Funding, are able to close quickly because there are not multiple levels of approvals that are necessary to get funded.
With over 35 years of experience in the real estate and mortgage business, Riverdale Funding is your best source of true asset-based hard money lending.
To receive a FREE evaluation of your commercial real estate property and borrowing needs, contact us today and one of our expert representatives will be glad to assist you.