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6 Factors to Consider When Evaluating Hard Money Lenders

For anyone looking to secure a hard money loan, borrowers will find no shortage of hard money lenders on the market. One of the most important steps in the hard money process is finding a lender you can trust. Hard money loans are a great way to quickly raise capital and foray into the lucrative real estate market. However, it is important to set yourself up for success by finding the correct lender. For those considering hard money loans, here we lay out a few key factors to consider when evaluating hard money lenders.


What is a Hard Money Lender?


Unlike conventional loans, lenders base their decisions on the hard assets, or the property itself, and less on soft assets such as credit, income, etc. This allows borrowers to secure capital to fix and flip, purchase and hold, or refinance their property without needing a perfect financial history. Since lenders take more risks in this loan form, you can expect to see higher interest rates accompanying the loans.


6 Factors to Consider For Hard Money Lenders


1. Loan-to-Value Ratio:


One of the most important factors to consider in a hard money lender is the loan-to-value ratio, or LTV, they will offer. LTV is the ratio of the loan to the value of the property that is being purchased. For hard money lenders, this equates to the amount they are willing to finance for the property. For investment properties, JMJ Funding considers loan-to-value up to 75%.


2. Property Type:


Property type is another consideration for hard money loan lenders. When looking to finance a property, some hard money lenders will only consider certain property forms. Questions to consider include, am I looking to finance a single-home, townhouse, or duplex? Along with this, how expensive is this property? Some hard money lenders may only approve certain purchase prices. Seeing whether your property is in the range of their target price is another factor to evaluate when considering lenders.


3. Geographic Region:


Certain lenders offer for certain regions. Some of the larger hard money lenders offer nationwide lending. However, it can be a benefit to find a hard money lender which deals with statewide or regional hard money loans. More localized support can mean a greater understanding of the market, along with individualized attention to your loan. Before reaching out to a hard money lender, see where their geographical range is and whether your property qualifies.


4. Loan Repayment Requirements:


One of the most important factors to consider in hard money loan lending is loan repayment requirements. Different hard money lenders have different requirements for hard money loans. One repayment method is to pay the accrued interest at the end of the loan cycle, presumably when the house is ready to turn a profit. Another repayment plan includes paying interest only for the duration of the loan. Certain other hard money lenders may also give a mix of the two, with interest on a shortened accrual period, and the rest of the loan paid upon the completion of the loan. Figuring out which one works best for you is a key step in successfully managing a loan repayment.


5. Interest Rates


Interest rates are another important factor to consider once evaluating hard money lenders. As with any loan, the difference in interest rates over a period of time can be a difference of thousands of dollars depending on the rate. With hard money lending, another aspect to be aware of is the increased interest rates due to the loan form. Unlike conventional loans, lenders take a large risk in funding borrowers. Oftentimes they do not receive the federal protection of a conventional loan form, and also base their loans on what the property will become, rather than a borrower’s personal financial backing. These factors make interest rates for hard money loans distinctly higher. However, when looking for a hard money lender it is still important to find one with competitive interest rates.



6. Lending Reputation

Finally, look beyond the loan itself and research the company’s reputation. Is this lender willing to provide advice? How long has this lender been financing hard money loans? What are other borrowers’ experiences with this lender? A positive reputation can ensure that the borrower will be supported, rather than just looking for a repayment. With over 28 years of lending experience, JMJ Funding is 99% for customer satisfaction.

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