5 Questions to Ask a Hard Money Lender Before You Commit

If you’re considering getting a hard money loan to fund a real estate project, there are a few questions you should have ready to ask your lender before you go any further. 

Not all lenders operate the same, and the last thing you want is to commit to a loan with the wrong terms. Before you sign anything, here are five questions you should ask to make sure you’re getting a deal that works for your investment.

Q1: What Are the Loan Terms?

Hard money lenders don’t have standard terms. You’ll find that some Arizona lending services have short repayment periods, while others offer extensions, and different lenders offer different interest rates and fees. 

So before you do anything, ask the lender about their repayment schedule. You’ll also want to know if there are any penalties for paying off the loan early, and if the loan is interest-only or a balloon payment at the end.

Q2: What Are the Upfront and Ongoing Fees?

Beyond interest rates, you should also be aware of any additional fees that hard money lenders often charge, like origination fees, underwriting fees, and sometimes servicing fees during the loan term. 

Ask the lender for a full breakdown of all fees, so you can compare different offers in advance.

Q3: How Much of the Property’s Value Will You Finance?

You need to know how much money you’ll need to have for your investment upfront, and that means finding out how much of the propderty the lender will finance. 

Most hard money lenders base loan amounts on the after-repair value (ARV) or current market value. It’s worth knowing that some lenders will finance up to 70% of the ARV, while others will only finance 60%, so ask your lender the right questions and make sure the loan amount will comfortably cover the purchase price and any repairs.

Q4: Do You Have Experience With My Type of Investment?

Some hard money lenders specialize in certain types of investments, and working with a lender who’s familiar with your strategy means they can better assess your project and offer more flexible terms. 

If the lender has funded similar projects before. they may also be able to offer helpful advice, especially if you’re new to investing. 

Q5: What If I Need More Time to Repay?

Hard money loans have short terms, usually spanning from 6 months to a few years max. But issues can come up during renovations, and you want to be aware of the situation with your lender if you find yourself in a worst-case scenario. 

To prepare for the potential for needing an extension, ask your lender about their renewal policies, including any additional fees they may charge, and whether they’ll allow you to transition to a longer-term loan. 

Takeaway

Hard money loans can be a great tool for investing in real estate—but only if you understand the terms. The right lender should be able to answer all these questions clearly, so you can make sure the loan you take out supports your investment goals.