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How to Spot a Lender You Should Stay Away From

How to Spot a Lender You Should Stay Away From

After months of searching for the right deal, you finally found one. Now, you need a real estate investment lender. 

Your investment deal needs to happen fast, so there is no time to work through the bank. An alternative investment loan would work, or if you must close within days, a hard money loan might be your only option.  

This is your first real estate investment deal, and you do not yet have a relationship with an investment lender. It is an exciting time, and you are under pressure but, as you go searching, be aware that, as in the case with any industry, real estate investment lending has its share of bad guys out there, waiting to take advantage of you.  

From fees that should never be paid, to promises that are never kept, there are predators waiting for your call.  

So, how can you spot a real estate investment lender that you should stay away from? The best approach is to vet your lender, just as they are vetting you.  

 

Research, Research, Research!

Your real estate investment lender should have a professional online and phone presence. They should also have samples of completed projects they have loaned on and have clients who sing their praises.  

From their lender website, you should be able to find out how long they have been in business. What type of real estate funding lender are they (alternative/hard money)? Are they an investment lender or are they a real estate investment broker looking to find you a lender? 

Check out their online reviews. What do their Google and Yelp reviews say about them? Search them up on the BiggerPockets.com forum to see if anyone is talking about them. (BTW: This is also a good place to ask around for advice should you come across a real estate investment lender who you are not sure about.) 

Google the real estate investment company’s office address and look at the photo of where they are located. Do they look like a legitimate business? 

From their lending website, find the company principals. What is their investment and lending experience? Do they do real estate investing themselves, or are they “pencil-pushers” – just selling investment loans? 

Check out the real estate lending company principals on LinkedIn. Is their profile consistent with who they claim to be on their business website? How many connections and referrals do they have? Do they list ownership in other businesses? If so, check those out too.  

You can go to the Secretary of State’s website in the state of their business address and do a search by the name of the real estate investment lender’s entity, owner, and other criteria.  

If all these things check out, then pick up the phone and call the real estate lender or send them a quick email with a summary of your investment project and lending needs. You should get a response within 24 to 48 hours, if not sooner (lenders in the alternative and hard money lending space act quickly, as deals cannot wait, and loans need to close quickly).  

Is the person in the real estate lender’s company who contacts you eager to answer your questions? Are they knowledgeable about real estate funding? Does the person who contacts you appear upfront and transparent about their lending company’s processes? Do they sound like they are trying to sell you a loan, or are they truly trying to understand your project?  

Tip: Keep in mind that legitimate real estate investment lenders are not able to give you exact rates and terms upfront for your project. They can give you a range, but they need to see your investment project information and financials before they can give you a final rate quote. 

What does the real estate investment lender ask you for upfront? Are they wanting any down payments or advance fees? Although there are circumstances where an investment lender may need some fees upfront, in general, this should raise a red flag, and be cause for further investigation into the specifics of the fees and the investment lender. 

 

Here are a few basic questions to ask your lender:  

What are your real estate investment lending programs?  

How quickly can you close funding for real estate investors? 

Do you have a minimum loan amount for your real estate funding? 

What is the range of your real estate funding rates/terms? 

How many points do you charge for your real estate investment loans? 

Does your company charge any additional fees in your funding for real estate investors? 

How quickly can I get a quote for real estate funding?  

What information do you need from me to give me a quote for funds for real estate? 

What is your real estate funding underwriting process? 

Do you have a minimum FICO score for real estate funding? 

What is the Loan to Value (LTV) you lend at?  

 

BTW, if you are not sure what the term “Loan to Value” means,  

here is a link to our Free and Downloadable   

IFC: COMPLETE REAL ESTATE GLOSSARY FOR INVESTORS   

It is really helpful to understand lending terminology when you talk with your lenders, so check out the Glossary and have it handy when you call potential funders!  

 

Is your LTV based on the purchase price or After Repair Value (ARV)?  

Do I need cash reserves for real estate funding? If so, how much?  

Do you do an appraisal? If so, do you use a house appraiser or a licensed appraiser? If you use an outside appraiser, do you use local appraisers or appraisers from national appraisal companies (which can slow the process or impact appraisal quality). 

 

Be ultra-prepared when you start calling prospective funders for your project. 

Download iFC’s Free and comprehensive checklist of questions to ask your lender: 

COMPLETE CHECKLIST: HOW TO VET YOUR LENDER 

 

How a real estate investment lender answers questions like these will give you a good idea of whether they are right for you.  

The right real estate funding professional offers transparency at every stage of the lending process. They give you upfront and helpful information and are readily available (preferably by phone) for additional questions.  

Also, you should be able to easily navigate the lending company’s online interface and communications should be seamless, self-explanatory, and trustworthy. 

Finally, check your gut: does the real estate investment lender’s “vibe” seem trustworthy, and like someone with whom you can form an honest long-term relationship?  

Keep in mind that a good relationship with a real estate funding lender is about more than just your loan. A great lender will become a trusted partner in your real estate investing game plan, one who has the capability to help you build your real estate investment portfolio, and business, over the long-term. 

Let’s get after it, Investor Nation! 

The iFC Team 

 

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Our free Quick Guide has the actionable advice, tips, and tools that you need to gain 100% confidence that you have done your homework, and that you are ready to call a lender to fund your next investment!  

 

Built for Investors by Investors  

i Fund Cities is an “alternative” lending platform offering custom real estate funding options for every level of investor, across a full range of lending products. As investors ourselves, we are just like you: hustle and grit, not suit and tie.  

We give you speed, transparency, knowledge, and a personalized investing partnership that you are just not going to find anywhere else.  

If you would like to learn more about what we offer, you can Schedule a Call with one of our Loan Officers or Get a Quote on your project. 

 

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