A First-Time Real Estate Investor’s Guide to Choosing the Right Hard Money Lender

Hard money loans can be short- or long-term loans primarily used to fund real estate investments. These programs are a class apart and much easier to acquire than conventional loans from banks and credit unions.

They are typically issued by private lenders like InstaLend, who prioritize the investment property rather than the borrower’s creditworthiness, tax returns, or financial history.

Try applying for your first hard money loan if you don’t believe us.

Along the same vein, check out this hard money lender guide for beginners to ensure you land on the right lender on your first go around the private lending sector.

Outline Your Objectives

There’s no such thing as the wrong hard money lender, but there is such a thing as the wrong hard money lender for you. Let us explain.

You seek to achieve something with every investment opportunity. Narrowing down these goals can help you find a loan program that aligns with your objectives.

Select your investment goals from our latest blog, or ask yourself the following questions:

What type of real estate are you interested in? (e.g., fix and flip, rental real estate, multifamily housing, etc.)
How much capital do you need?
How long do you want the loan term to be?
What is your exit strategy?

A Real Estate Investor Writing Down Investment Goals While Staring at Their Laptop Screen

Let the Search Begin

Once you’ve outlined investment goals, start researching potential hard money lenders whose programs align with those goals.

You can look up lenders specializing in your target market or property type online. For instance, you could search for a new construction loan (property type) in Connecticut (target market). Other online avenues include social media, real estate forums, subreddits, and online reviews.

Local real estate networks are another place to find lenders. Attend local meetings in these circles, join investor groups, and connect with experienced investors in your area for recommendations.

Take the online or offline approach or try both to make a list of hard money lenders, but dear beginner, always remember to verify these potential lenders. Check if they are licensed and registered to grant loans in your state and follow the industry standards. Only then should you partner with them for a hard money loan.

Hard Money Lenders for Beginners 101: Market Reputation

Market reputation is for lenders what character analysis is for individuals: It is a measure of their credibility. One of the most critical factors when choosing a hard money lender is their experience and reputation in the industry.

A Row of White and Blue Condominiums Funded by a Hard Money Lender

There are a few places to assess these aspects.

Portfolio: You can only trust a hard money lender without a portfolio as far as you can throw them. We have a portfolio because we have experience with projects similar to what you are looking to invest in. We will surely have funded deals in your target market and/or property type.
References: If a lender doesn’t have a portfolio online, it doesn’t mean they don’t have a portfolio at all. Ask them for past projects or references from past clients. Speaking with other investors who have worked with the lender can provide valuable insights into their reliability and professionalism.
Online Reviews: Once you find a lender with a program that aligns with your target market and property type, check for potential red flags in online reviews and testimonials.

Find Your Lender by Loan Terms and Costs

Hard money lenders don’t have to comply with standard loan rates and terms. Thus, one may offer different loan terms and costs than the other. It’s essential to compare these factors to ensure you’re getting a fair deal.

Consider the following:

Interest Rates: The interest rates on short-term hard money loans are usually higher than those on long-term loans. To secure a bridge loan, ensure you don’t have to pay more interest than you must, even on a 12-month program.
Loan-To-After-Repair-Value (LTARV) Ratio: Check out the maximum LTARV or LTV ratio the lender can offer to know that they can finance the percentage of the property’s value you need.
Loan Term: Compare loan terms across lenders to select the right term. Hard money loans are usually short-term, which isn’t always a good thing for an investment property. Go for a loan term that aligns with your timeline and exit strategy.
Upfront Fees: Upfront fees, or lack thereof, can make or break your decision to hire a lender. For your information, we don’t charge our lenders an upfront fee. If you find a lender that charges a fee, ask them for a breakdown of all costs.
Prepayment Penalties: Some lenders impose prepayment penalties if you pay off the loan before the loan term. Go with a lender without this penalty—there are plenty!

A Grinning Hard Money Lender on the Phone with a Potential Borrower

Seek Responsiveness, Transparency, and a Sense of Cooperation

Effective communication and transparency are vital when working with a hard money lender. You can check for communication by seeing how quickly the lender responds to your inquiries and requests for information.

For transparency, ensure that the lender provides clear and understandable loan terms. Avoid lenders who use complex jargon or are reluctant to explain their terms, which brings us to the third point.

Feel free to ask questions when evaluating potential hard money lenders. If they want to work with you, they must respond to your request for references, required documentation, timelines, and whatnot on time.

Asking these questions will help you better understand the lender’s operations and how they align with your investment needs. Commence your real estate investment journey with confidence and optimism—do it with InstaLend!

We charge our investors no upfront fee or make them pay a prepayment penalty to ensure they can exit strategy on their terms. Hard money loans are easier done than said with us on your side.