Who is the best hard money lender going into 2022?

Naturally, I believe we are the best hard money lender out there. We strike a nice balance of offering some of the best hard money loan rates, we’re local, and we have many different programs that others don’t. However, the purpose of this article is not to put hard money lenders side by side and compare them to determine who is the best. I don’t believe it’s that easy. Hard money lenders come in all different shapes and sizes. There are many tangible and intangible factors that a borrower needs to weigh before they pick their hard money lender. This article will go through several factors that I believe a hard money loan borrower should consider before picking the best hard money lender for you in 2022.

National Hard Money Lender vs. Local Hard Money Lender

In the world of hard money lending, the differences between a local and national hard money lender can be significant. A national hard money lender is one who covers most of the US from a centralized location.  National lenders don’t know the nuances of the markets and they have a reputation for being clunky or slow. Often times, national lenders will use appraisal management companies, national law firms, and national construction inspectors. The clear goal of a national hard money lender is to get scale, and that’s a difficult thing to achieve as you manage risk in that many markets. That’s why national lenders get the reputation of being “an expensive bank”. They force you into their box and have limited flexibility or common sense like a bank.  National hard money lenders can take several days to approve your loan and several week to close. One of the most important aspects of hard money lending is speed. I believe local hard money lenders have a distinct advantage when it comes to speed. Local lenders can align themselves with local service providers (appraisers, lawyers, title companies) who understand the business and can meet deadlines.

How fast can they approve a hard money loan?

Your hard money loan should be approved in less than 24 hours. Most of our loans are approved in just 4 hours. National lenders and even some local lenders who aren’t direct (don’t lend their own money), can take days to approve a loan. Make sure you get a clear indication of how fast the loan will be approved before you spend time pulling together the required documentation.

What are their rates and terms?

As a general rule, national hard money lenders tend to offer the lowest interest rates. It’s not always true, but smaller shops generally have higher cost of capital so local lenders on average tend to offer higher rates. Rates for a national hard money lender tend to be between 8-11% for a fix and flip loan. Local hard money lenders in New England tend to be in the 10-12% range in my experience. Regional lending shops like ours, who are big enough to attract cheaper capital, can match national hard money loan rates.

Are they a direct hard money lender?

Going to a direct hard money lender is absolutely the way to go. The Covid-19 pandemic has brought to light what I’ve been saying for quite some time. Direct hard money lenders are the only reliable source of funding for real estate investors because the lend their own funds. There are countless lenders in the market that say they are “direct” hard money lenders when they aren’t.  That makes them glorified loan brokers. In the early stages of Covid, these lenders found themselves with no ability to make hard money loans or fund construction draws because their loan buyer stopped funding. A direct lender has their own source of capital, which allows them to make their own decisions. Groups like ours never stopped lending during Covid and our borrower enjoyed 48hr construction draws. Other lenders left their borrowers high and dry, creating stalled construction projects and forced loans into default at no fault of the borrower.

Do they offer different types of hard money loan programs?

The days of hard money lenders offering only a 12-month program for fix and flips are over. We have several different construction programs, purchase only programs, and we now offer 30-year fixed hard money loans for rentals. The newest product to hit the hard money market is the 30-year fixed program. This is for 1-4 unit rental properties and is great for borrowers who enjoy a “doc lite” program, with a relatively low fixed rate more in line with conventional financing options. Our 30-year fixed rate programs offers rates that start at 3.75%!

How quickly can your hard money lender close?

Our record closing time for a hard money loan was 3 days. We can move quickly because we are a direct hard money lender, we make our own decisions on loans. Lenders that sell their paper may need weeks to close, we average just 10 days.  One of the major hurdles to a quick close these days is the appraisal. We have relationships with appraisers that understand our business and they are fast. A lot of national lenders use appraisal management companies, which can be slow and delay closings as a result.

How fast are they at funding construction draws?

Banks and conventional financing sources are clunky and slow. Speed matters because it replenishes the borrower’s liquidity and keeps the project moving forward without interruption. By default, construction loans are high touch and banks generally don’t like them for that reason. They would much rather lend deposits to consumers, make their rate spread and move on to close the next loan.  Hard money lenders have built their shops around construction lending. Not only do we close loans fast, but we are just as fast and efficient in funding construction draws. Our construction inspectors understand that so they respond quickly to our borrowers and are usually on site within 24-48 hours. Our in house draw team will wire the funds into the borrower’s account within a business day of receiving the inspector’s report.  Make sure you completely understand how the lender’s draw process works and how fast they fund. The last thing you want to do is send contractors away because you have to wait a week or two for your lender to fund a construction draw.

Are they transparent / borrower friendly?

You should get a clear understanding upfront as to what the hard money lender’s conditions are to approve and close a loan. The amount of paperwork required by a hard money lender is typically far less than that a conventional mortgage lender. However, some lenders can require tax returns, financial statements, verification of employment etc. Make sure you know ahead of time that not only you can meet the lender’s underwriting requirements for approval, but also their conditions to close. Also, have the lender tell you exactly what their fees and costs are to close. So often I hear borrower’s complain about lender junk fees showing up on the HUD that they didn’t know about.

What’s their reputation?

This is 2021, whatever hard money lender you choose should have an online presence with several positive reviews. This is especially important when choosing a hard money lender. While hard money lenders have been around for hundreds of years, it wasn’t long ago when you had to know someone who was lending hard money.  Not all hard money lenders have good intentions. Unfortunately, there are “vulture lenders” out there that are hoping you default so they can take the property back at a discount. That’s why there is a lingering stigma associated with hard money lenders. The world of hard money lending has come a long way in the last 10 years. Hard money lenders fill a significant void in the marketplace for fast construction loans. However, not all hard money lenders are created equal. Do your due diligence before you pick your lender, you’ll never regret it.