Hard money lending has become popular for real estate investors and property buyers, especially in competitive markets like California. Unlike traditional loans, hard money loans are typically short-term, asset-based loans offered by private lenders. 

Here are the top 10 questions you should ask:

What Are Your Lending Criteria?

Ask about the types of properties they finance, the minimum and maximum loan amounts, and their specific requirements for the loan application. Some lenders might focus on residential properties, while others may be more inclined toward commercial real estate. Clarify whether they require a certain loan-to-value (LTV) ratio or if there are any specific conditions you need to meet.

What Are the Interest Rates and Fees?

Hard money loans often have higher interest rates than traditional loans. Ask for a detailed breakdown of the interest rate, origination fees, points, and any additional charges. Ensure you understand how these costs will impact your total loan repayment and compare them with other lenders to gauge competitiveness.

What Is Your Maximum Loan-to-Value (LTV) Ratio?

The LTV ratio determines how much you can borrow against the property’s value. Ask the lender for their maximum LTV ratio, which typically ranges from 60% to 75% for hard money loans. Understanding this will help you gauge how much equity you need to contribute and the potential loan amount you can secure.

What Is the Loan Term, and Are There Options for Extension?

Clarify the precise term length of the loan, such as 12 months or 24 months. Additionally, ask about the process and terms for extending the loan if your project requires more time.

What Are the Underwriting Guidelines and How Are They Applied?

Request details on these guidelines, including the criteria for assessing the property’s value, the borrower’s financial status, and any specific requirements that might impact your loan application.

How Is the Property Valuation Conducted, and What Methods Are Used?

Ask if they use an in-house appraiser or an external appraisal service. Inquire about the valuation methods used, such as comparable sales or income-based approaches, and how the appraisal report will impact your loan.

What Are the Terms for Draws or Disbursements of Funds?

If your loan involves funding in stages, ask about the process for draws or disbursements. Inquire about the requirements for requesting funds, the timeline for disbursement, and any associated fees or conditions that must be met before funds are released.

What Are the Exact Prepayment Penalties and Conditions?

Prepayment penalties can affect your decision to repay the loan early. Request specific details on any prepayment penalties, including how they are calculated and under what conditions they apply. This will help you understand the financial implications if you choose to pay off the loan early.

What Are the Requirements for Collateral?

Hard money loans are secured by collateral, usually the property itself. Inquire about the collateral requirements and whether the lender accepts different types of properties. Understand how the lender will value the collateral and if there are any specific conditions for the property to qualify.

Can You Provide a Sample Loan Agreement or Disclosure Document?

Request a sample loan agreement or disclosure document to review the terms and conditions in advance. This will allow you to closely examine the contractual obligations, repayment terms, fees, and other critical details before committing to the loan.

Looking for a reliable hard money lender in California? At ARC Private Lending, we offer competitive rates, flexible terms, and a streamlined process to meet your needs. Contact us today to learn more!