Here’s Everything Hard Money Loan Borrowers Must Know about Lending Scams

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Have you decided to buy a new property and invest in real estate? We’d like to appreciate your decision. So, what’s next?

You need funding!

What’s your first choice when it comes to money? – Hard money loan lender.

This century-old industry has been around in different forms solving the same purpose. Commercial hard money loans are popular as they are available quickly and has the flexibility to underwrite.

 

How hard money loans for real estate works?

The lender analyzes the value of the property or home and provides a loan based on the property value.

They do not consider the creditworthiness of the borrower. The lender agrees to fund only if the property is profitable.

 

Limitless suspicion

However, money always comes with an opportunity. The opportunity could either help you grow or ruin your peace of mind.

When it comes to choosing the best hard money loan for real estate, you need to be very careful.

There are many companies looking to take advantage of every opportunity to cheat in the name of commercial hard money loans.

So, it’s better to avoid suspicious intermediaries and learn more about the lender before you sign a deal.

 

Spotting the best lender of hard money loans for real estate

 

A good research is a key

With the internet in place, it’s easy for every customer to understanding the functioning of a company.

Extremely happy customers and dissatisfied customers are likely to post their reviews, comments, and suggestions on various medium.

The internet plays a major role in connecting like-minded people together. When a customer is in need of hard money loan, he or she would probably look for better options online.

With the reviews, you’d be able to guess the reputation of the lender. If they are overloaded with genuine feedback, you can trust the company.

If the company doesn’t respond to the feedback, you can stay away from them.

If you are doing your research, you need to consider the good and bad review and choose the best company based on its customer’s experience and feedback.

 

Also read
Questions You Need to Ask a Hard Money Lender.

 

Talk to like-minded people

The best way to find a reputed agent or lender is to talk to the commercial hard money loans group.

You can find a lot of similar groups in the social media where people connect together, share their stories and experiences regarding the lending process.

Joining such groups will help you learn more about the market, help you to choose the best lender in town and it will also give you insights about the eligibility, terms, and conditioners to get hard money loans for real estate.

With a lot of people discussing common things in the group, you will be able to identify the best and the worst, you can also learn about the number of companies that lends amount and the most profitable business. Before you deal with money matters, it is important to discuss, talk and sort out.

 

Understand the lender

Before you choose hard money loans for real estate lenders, you need to know about the qualities of the lender.

A good lender will be interested in your growth and successes. As your success is equivalent to theirs.

When you talk to the lender, you need to watch his inquiries. If they ask about the exit strategy and comment on the profit level of the deal it shows that the lender is actually interested in your success.

A good lender works with you and helps you reach your goal.

They must also be eager to know how soon you will be able to close the loan. If they are not interested in learning about the loan closure, they are more interested in acquiring the property.

A genuine hard money loan lender will help you to grow and pay back the debts and he will not be interested in owning the property.

A good research, better understanding of the lender will help you choose the best company who is interested in your growth.

 

The common hard money loan scams to keep an eye out for bait and switch scheme

It’s often an illegal practice.

Customers are attracted when lenders pose attractive offers on hard money loans for real estate. When the lenders pose the most attractive deal, the borrowers cannot refuse it.

With the attractive offers, customers easily take off the other lenders on their priority list and fall a prey for this lender who uses his tactics to attract customers.

Once the lender is sure about the borrower’s decision, he talks about the real ‘hidden terms and conditions’ during the closure.

The lender alters the interest rate and reduces the number of hard money loans for real estate.

This might put the borrowers in a clueless situation.

Considering the time and the eliminated options, he or she is forced to accept the terms and conditions of this lender. With time constraints, he is forced to accept the loan from this lender

 

How to avoid this scam?

Do not get attracted by impressive deals and discounts. Read the ‘terms and conditions’ clearly before signing a deal.

You must also have one or two lenders in the pipeline so that you can switch to the other one in case if the first one doesn’t work.

Finally, talking to experts will also help you understand the differences between Lender A and Lender B.

 

The ‘Fee’ Scam

Whether hard money loans for real estate or Commercial hard money loans, you must be aware that it comes with a fee.

Most of this fee is not refundable. Every lender might have their own definition for such fee. Some say it as application fee and others say it as initial fee.

However, this fee cannot be avoidable.

 

So, how can someone cheat you?

It’s simple. The fee is applicable only during a deal closure. If you are sure to close the hard money loans for real estate deal with a particular lender, you must pay the application or processing fee to initiate the loan process and procedure.

If the lender is not reliable, they would just charge you the initial fee before you finalize the deal and they would not respond to your calls, emails, and messages.

They would simply charge you the fee without finalizing the deal. Once you are cheated, you need to look for another lender who deals with hard money loans for real estate.

 

How to stay away from hard money loans scam?

  • Firstly, you need to use your common sense!
  • Secondly, Don’t trust someone blindly
  • Thirdly, Know the dangers and warning signals

 

The deal is too good

If the deal seems to be too good than what was discussed in your group, you must verify the reliability and reputation of the lender.

Hard money loans for real estate cannot have the lowest interest rate. Compare the interest rate in the market and accept the offer only if you find it true.

 

Immediate approval

Does your lender promise to lend you money without any documents and formalities?

Don’t get carried away with the hard money loans for real estate that gets approved quicker than you expect. If the lender approves your loan request without or with less information, it’s a scam.

 

100 percent loan financing

Can the lenders of hard money loans for real estate provide 100 percent financing? It’s impossible.

They can try up to 90% but it’s difficult beyond that. If the lender promises to pay 100% finance, you must believe that it’s a scam.

 

A lender that no one knows

You need to know the reputation of the lender before you fix a deal. If you come across a new lender that no one knows, you need to be very careful with your dealing.

The lenders may change names and their identity frequently to cheat the borrowers. You need to pin down their lending history and proceed only if you find it authentic.

 

Read the agreement before you sign

The first few lines of the agreement may sound interesting and convincing but the entire document may not. You need to read the entire document before you sign the deal.

You’ll be in trouble if you don’t read the agreement of hard money loans for real estate.

For instance, a borrower has signed an agreement that allowed the lender to seize the home even if he misses to pay one payment.

The agreement can be tricky, so read it completely and seek the advice of experts.

The lenders of hard money loans for real estate play a very important role in the industry as they support the buyers/borrowers with funding at the right time.

Seeking the help of right lenders can add more benefits.

However, you need to be aware of the frauds in the market and stay away from them. The best way to avoid is to use common sense and follow your guts.

Want to learn more? Get in touch with us today.

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