Learning to Deal With Commercial Hard Money Lenders

If you're familiar with the way conventional commercial lending works, you'll find that hard money lending for commercial purposes works completely differently. Commercial hard money lenders completely focus on one thing when they try to decide whether an applicant should be granted a loan – his real estate holding.

You'll never find commercial hard money lenders asking to look at your credit score, your tax returns or any proof of what the kind of income you make. Since the government doesn't really regulate this kind of lending, it's up to the mortgage broker to really do what's needed to protect the borrowing client. Whether you are a mortgage broker helping a client or a client yourself, here are a few basic tips to keep in mind as you go about the process.

The first thing you need to keep in mind is that when it comes to dealing with commercial hard money lenders, there's just no winging it. The broker needs to really understand the deal. He needs to understand what the client wants the loan for, and needs to understand what the lender is looking for in the deal as well.

Sometimes, when it comes to buying or selling property or putting property up for a hard money loan, it's possible that there's a story behind the property. Whatever it is, it is the job of the broker to really know what's going on. You need to know about any title issues, cash flow related to the property, credit or bankruptcy issues and so on.

Once the broker is quite certain that he understands the borrower, it's time for him to shift his attention to finding the lenders that are a good fit for the client, and for the deal.

Borrowers need to keep in mind that people who appear to be lenders may sometimes really just be brokers, shopping their deal to lenders. Why is this a bad idea?

Of course, when you do this, you go through an unnecessary middleman who adds nothing to the deal, really. He just ends up inflating the deal.

Clients and providers need to both really understand the entire process by which the loan will pass.  whatever inspections and closing fees there are, it should all be up front. Speaking of being up front, you do need to watch out for those fees. Lenders will sometimes charge massive due diligence fees worth thousands of dollars. They claim to need those funds to really check the property out. These fees are nonrefundable. Everyone needs to know what they're getting into before they sign on anything.

Many lenders will try a quick yo-yo deal to make a little more money. They will approve the loanfirst; then, they will pull back right before the signing, and refuse to go ahead unless the lender agrees to new terms. You must never go along with this.