Questions to Ask a Hard Money Lender
Questions for a real estate investor sizing up a hard money lender on a specific deal: what the loan actually costs all in, how and when the money is released, and what the lender does when a project runs past its term.
The questions
Open any question for the note
What kinds of deals do you fund most often, and what did you close last month?
Why ask it
A lender who can describe recent closings by property type, size, and market is actively deploying capital. Vague answers about what they 'can' do often mean they are a broker shopping your file to someone else, which adds a fee layer and a week to closing.
Do you lend in the county I'm buying in?
Why ask it
Many hard money lenders are licensed or comfortable only in specific states and metros, and some redline rural parcels or specific city blocks. Asking by county rather than state avoids finding out at underwriting that your address sits outside their footprint.
What rate and how many points would this deal carry?
Why ask it
Rate alone understates the cost. Points are charged up front on the full loan amount, so two points on a short six-month loan can cost more than the interest does. If the answer is a wide range with no deal-specific number, they have not priced your file yet.
Besides rate and points, what other charges show up on the settlement statement?
Why ask it
Doc prep, underwriting, inspection, draw, and wire fees are where quotes diverge most. A lender who names them without hedging is used to being compared. One who says 'just the standard closing costs' is worth pushing for a written fee sheet.
Is your loan amount based on purchase price, after-repair value, or total project cost?
Why ask it
The basis matters more than the percentage. Seventy percent of after-repair value can beat ninety percent of purchase price, or lose to it, depending on the spread. Get both the basis and the cap, since most lenders quietly apply whichever is lower.
How much cash will I need at the closing table on this deal?
Why ask it
This forces every ratio, fee, and reserve requirement into one number you can compare across lenders. Answers that shift upward as underwriting proceeds are the most common reason investor deals die a week before closing.
How do you determine after-repair value, and who does that valuation?
Why ask it
Some lenders order a full appraisal with an ARV opinion, others use a broker price opinion or their own desk review. Desk reviews come in conservative, which shrinks your loan late in the process, so ask what happens if their number lands under yours.
Do you release rehab money in draws, and what triggers each draw?
Why ask it
Draw mechanics decide whether you can pay your contractor. Ask whether draws require an inspection, how long reimbursement takes, and whether you must fund the work first. Investors with thin cash reserves get squeezed by lenders who reimburse slowly.
How long does a draw request take from submission to funds in my account?
Why ask it
Three days and fourteen days are both common, and the difference decides whether your crew stays on site. Ask about the last time a draw took longer than promised and what caused it.
What is the loan term, and how do extensions work?
Why ask it
Most terms run six to twelve months, and most rehabs run late. What matters is the extension: whether it is automatic or discretionary, the fee, and whether the rate steps up. A lender who says extensions are 'usually not a problem' but will not name the fee has left themselves room.
Is there a prepayment penalty or a minimum interest period?
Why ask it
Some hard money loans guarantee the lender three to six months of interest even if you sell in month two. On a fast flip that clause can erase most of your margin, and it rarely appears in the headline terms.
Do you charge interest on the full loan amount or only on funds drawn?
Why ask it
Non-dutch interest bills you only on money actually released. Dutch interest bills the full amount from day one, including rehab money still sitting with the lender. On a large rehab budget the gap runs into thousands per month.
What experience or track record do you want to see from me?
Why ask it
Lenders price by borrower experience, and a first-timer often faces lower leverage rather than a flat no. Hearing their tiers tells you what your second and third deals will cost, and whether it is worth partnering with someone experienced now.
What do you need from me in writing to underwrite this?
Why ask it
The document list reveals how rigorous they are: a purchase contract and scope of work is light, while bank statements, entity docs, and a contractor bid signal a real credit process. It also tells you how many days of gathering stand between you and a term sheet.
Is this loan recourse, and will you want a personal guarantee?
Why ask it
Recourse means a shortfall at foreclosure follows you personally rather than stopping at the property. Ask specifically whether a spouse must sign, since that pulls household assets into a deal they had no part in choosing.
What happens if I miss a payment or reach maturity without paying off?
Why ask it
Ask for the sequence: grace period, late fee, default rate, then notice. Default rates in the high teens or twenties are common and compound the problem fast. A lender who describes a workable process has been through it, one who deflects may move straight to foreclosure.
How often do you end up foreclosing, and what does that process look like for you?
Why ask it
Some lenders underwrite the property hoping to own it. A candid answer about foreclosure frequency and their preference for workouts tells you whether they profit from your failure or from your repeat business.
Who actually funds the loan, you or outside investors?
Why ask it
Balance sheet lenders can commit and close. Lenders raising money per deal, or syndicating to individuals, can go quiet when their capital does. Ask how they would handle a funding gap the week of closing.
Which exit do you expect on this deal, and would you fund the refinance yourself?
Why ask it
A lender who has an opinion on your exit has actually read the deal. Some also write longer-term rental loans, which makes the handoff simpler. Others require a specific payoff plan and will not extend if you change course mid-project.
Can I speak to two borrowers you funded in the past six months?
Why ask it
Ask those borrowers whether terms changed between term sheet and closing and how draws were handled. That is where hard money lenders differ most, and it is the part no rate sheet discloses. Refusal to provide references on a repeat-business product is telling.
Working with a Hard Money Lender
Practical guidance for the conversation itself
Before you call
Have the deal in hand
Hard money lenders price a property, not a person. Come with the address, purchase price, your scope of work with a rehab budget, and your estimate of resale value with comparable sales. Without those, every answer you get is a range rather than a quote.
Know your cash position
Decide before the call how much cash you can put in and how many months of payments you can cover if the project stalls. That number determines which leverage tier you can safely accept, and it keeps you from being talked into the highest one available.
Comparing two quotes fairly
- Convert everything to a single total dollar cost over your realistic timeline, not your optimistic one. Rate, points, fees, and a likely extension all belong in that number.
- Add the cost of the interest method. Dutch interest on undrawn rehab funds can outweigh a half point difference in rate.
- Price the extension explicitly. Assume you go one to three months long and see which quote holds up.
- Count the days to close. If a cheaper lender needs three extra weeks and the seller will not wait, the cheaper quote is not available to you.
- Ask each lender to send a written term sheet. Verbal quotes drift, and comparing two documents is far easier than comparing two conversations.
Warning signs in the conversation
- An application fee or appraisal deposit collected before any term sheet exists.
- Terms that get worse after you are under contract and past your inspection deadline, when your earnest money is already at risk.
- No written fee schedule, or fees described only as customary.
- Reluctance to say who funds the loans, or a story about a capital partner you cannot contact.
- Pressure to accept the maximum leverage offered rather than the amount your deal supports.
After the loan closes
Manage the draw calendar
Submit draw requests as soon as a milestone is genuinely complete, and keep photos and invoices organized the way the lender asked. Most draw disputes come from incomplete paperwork rather than incomplete work.
Raise delays early
If permits, weather, or a contractor put you behind, tell the lender in the month you find out, not in the final week of the term. Extensions negotiated early are routine. Extensions requested at maturity get priced as distress.