Questions to Ask a Hard Money Lender
Questions to ask a hard money lender before you sign a term sheet, written for a real estate investor with a specific property in mind. The list opens with screening questions for a first call, then works through what the loan costs in full, how you and the property qualify, rehab draws, the term and what happens in default, and the lender's own track record.
The questions
Each question, and why to ask it
First Call
Are you a direct lender, or would you broker this loan to someone else?
Why ask it
A direct lender makes the decision on your file and funds the loan itself. A broker can still earn a place, since a good one knows which lender suits an odd deal, but you want to hear it now, along with what the broker is paid and who has the final say.
What kinds of deals do you fund most often, and what did you close last month?
Why ask it
Recent closings described by property type, loan size and neighborhood show a lender who is lending right now, and you can hear whether your deal resembles the ones they like. If all you get is what they 'can' do, ask for one example close to yours.
What rate and how many points would this deal carry?
Why ask it
Rate alone understates the cost. Points are paid up front on the loan amount, so on a loan you hold for six months, two points weigh about as much as four extra percentage points of annual rate. A wide range with no figure for your deal means they have not priced it yet.
How much will you lend on this deal, and is that based on purchase price, after-repair value or total project cost?
Why ask it
The basis matters as much as the percentage. Seventy percent of after-repair value can beat ninety percent of purchase price, or lose to it, depending on how far apart the two figures are. Lenders call these loan-to-value, loan-to-cost and ARV limits, and many apply whichever comes out lowest, so get every cap.
How fast can you close on this property if I send everything today?
Why ask it
Speed is most of what a hard money rate pays for, so get a date, not an adjective. Then ask which step usually holds things up, the valuation, title or insurance, because that is the one to start on the day you go under contract.
Do you lend in the county I'm buying in?
Why ask it
Plenty of hard money lenders work only in certain states or metro areas, and some will not take rural property at all. Giving the county, not just the state, saves you from learning in underwriting that the address is outside their territory.
What are your smallest and largest loan sizes?
Why ask it
A lender's minimum can rule out a cheap house before anyone looks at the deal, and a loan near the maximum may need a second approval. If yours sits at either edge, ask whether the pricing or the timeline changes there.
Do you lend on a home I plan to live in, or only on investment property?
Why ask it
Many hard money lenders make business-purpose loans only, because a loan on the home you live in falls under consumer lending rules that vary by country and state. Say plainly how you will use the property. Describing a residence as an investment to get approved creates a far bigger problem later than a declined application does now.
Cost
Besides rate and points, what other charges show up on the settlement statement?
Why ask it
Document preparation, underwriting, processing, wire and the lender's own legal fees are where two quotes with the same rate come apart. If the answer is 'just the standard closing costs', ask for the fee sheet in writing before you compare anyone.
Do you collect any money before closing, such as an application fee or an appraisal deposit?
Why ask it
Paying for a third-party appraisal once you hold a term sheet is ordinary. A large fee before anyone has looked at the deal is the shape of an advance-fee scheme, so ask what each payment covers, who receives it, and whether it comes back if they decline the loan.
How much cash do I need to bring to closing, down payment and fees together?
Why ask it
This pulls the down payment, points, fees and any reserve into one figure you can set beside another lender's. Write it down with the date and raise it again once underwriting is finished. If it has grown, you want the reason in dollars.
Can the points and closing costs be rolled into the loan, or do I pay them in cash?
Why ask it
Financing the costs keeps cash in your pocket for the rehab, but you then pay interest on them and the loan sits closer to the lender's cap. Have them quote the closing figure both ways.
Are the monthly payments interest-only, and is the rate fixed for the whole term?
Why ask it
Interest-only payments with the whole principal due at the end is the usual shape, but some lenders roll the payments into the payoff and a few float the rate. Each version changes what leaves your account every month while the house earns nothing.
Do you charge interest on the full loan amount or only on funds drawn?
Why ask it
Lenders sometimes call the first method Dutch interest: the whole loan accrues from day one, including rehab money still sitting in their account. Under the other, you pay only on what has been released. Multiply the undrawn rehab budget by the monthly rate to see what the difference costs you.
Is there a prepayment penalty or a minimum interest period?
Why ask it
A minimum interest clause promises the lender a set number of months of interest even if you sell in month two. On a quick flip that is money owed for time you never used, and it tends to sit in the note, not in the headline terms.
What balance do you want to see in my accounts, and do you hold back an interest reserve at closing?
Why ask it
These are two different demands on your money. One is a balance you prove with statements and keep. The other is several months of interest taken out of the loan proceeds on day one, which shrinks what you actually receive.
Qualifying
How do you determine after-repair value, and who does that valuation?
Why ask it
It might be a full appraisal with an after-repair opinion, a broker's price opinion, or a review done at the lender's own desk. Whichever it is, ask what happens to the loan amount if their figure comes in under yours, and whether you can send comparable sales for them to consider.
What experience or track record do you want to see from me?
Why ask it
First-time investors are more often offered lower leverage or a higher rate than refused outright. Where there are experience tiers, the detail that matters is what counts as a completed project, and whether a partner's record can stand in for yours.
What changes for me on a second or third loan with you?
Why ask it
Lenders like these depend on borrowers who come back, and many keep better leverage, lower points or lighter paperwork for them. If nothing improves for someone who has paid them off twice, you have learned how much the relationship is worth to them.
What do you need from me in writing to underwrite this?
Why ask it
The list shows how deep they look. A purchase contract and a scope of work is a light file, while bank statements, entity papers and a contractor's bid mean a fuller review. It also tells you how many days of gathering stand between you and a term sheet.
Do you pull credit, and is there a score you will not go below?
Why ask it
Hard money leans on the property, yet most lenders still read a credit report for recent foreclosures, bankruptcies or unpaid judgments. Find out whether it is a hard pull and at what stage, so that three lenders do not each run one in the same week before you have chosen.
Do I have to borrow through an LLC, and which entity documents will you want?
Why ask it
Plenty of lenders will lend only to a company, never to a person, and will ask for the formation papers and proof that it is in good standing. Setting one up can take days or weeks depending on where you are, so this answer belongs at the start and not in the week of closing.
Do you need to be in first position, and would you allow a partner's money or a second loan behind yours?
Why ask it
Nearly every hard money lender wants the first lien. Where they differ is on what may sit behind it: some forbid any second loan, and some insist the down payment is your own cash, which matters a great deal if a partner is funding your share.
Are there property conditions you will not lend on?
Why ask it
Fire damage, foundation trouble, missing utilities, unpermitted additions and tenants still in place each rule a house out for some lenders. Describe the worst thing about the property first. Once it has been said on the first call, it is much harder for it to become a reason to reprice the loan later.
What insurance do you require before closing?
Why ask it
A vacant house under renovation usually needs a different policy from an ordinary homeowner's one, and the lender will want to be named on it. Cover of that kind can take longer to arrange than the loan does, so get the requirements in writing and pass them to an insurance agent the same day.
Will you give me a proof of funds or pre-approval letter to send with my offers?
Why ask it
Sellers of distressed property often want to see financing before they take an offer seriously. Ask what the letter commits the lender to, which is usually nothing until the property is underwritten, and how quickly they can reissue it for a different address.
Rehab Draws
Do you release rehab money in draws, and what triggers each draw?
Why ask it
The trigger might be a finished line of your budget, a percentage of the job, or whatever an inspector signs off on. Ask who inspects, whether photos or a video call will do, and whether you can draw against materials that are delivered but not yet installed.
Will you advance any of the rehab money at closing, or is it all reimbursed after the work is done?
Why ask it
If it is all reimbursement, you pay for demolition and the first phase out of your own pocket and wait to be paid back. Add that float to the cash you need on day one, on top of the down payment.
How long does a draw take, from my request to money in my account?
Why ask it
Your contractor's patience is set by this number, so get it in business days. The last draw that ran late, and what held it up, is a fair thing to raise next.
Is there a fee for each draw or inspection, and a minimum draw amount?
Why ask it
A per-draw charge looks small until you count the draws. Add a minimum amount and you are pushed into fewer, larger requests, which means paying your contractor out of your own pocket for longer between them.
Do you need to approve my contractor, and can I do some of the work myself?
Why ask it
Requirements run from a licensed, insured general contractor with a signed bid down to owner labor with only the materials reimbursed. If your budget counts on your own weekends, settle this before the scope of work is locked.
What happens if the rehab runs over budget or the scope changes partway through?
Why ask it
Opening a wall tends to change the plan. Lenders rarely add to a loan once it has closed, so an overrun comes out of your cash, and a changed scope may need their sign-off before the next draw is released. Ask who approves a change and how many days that takes.
Term and Default
What is the loan term, and how do extensions work?
Why ask it
Terms of six to twelve months are typical and rehabs have a habit of running long, so the extension is the part to pin down: whether it is yours by right or at their discretion, what it costs, and whether the rate steps up. 'Usually not a problem' with no fee named is not an answer.
Which exit do you expect on this deal, and would you fund the refinance yourself?
Why ask it
An opinion on whether you should sell or refinance shows they have read the deal, and a lender that also writes longer-term rental loans can make the handoff simpler. The harder case is a change of course midway, from selling to renting it out, say. Find out now whether that would need their consent.
How do I order a payoff statement when I sell, and are there exit or release fees?
Why ask it
Your buyer's closing or your refinance cannot fund until the lender issues a payoff figure. Ask how many days that takes and whether interest is charged to the day or to the end of the month. An exit fee nobody mentioned at the start sometimes makes its first appearance on that statement.
Can I have the note and the security documents a few days before closing?
Why ask it
The term sheet is a summary. The promissory note and the mortgage or deed of trust are what bind you, and they often arrive the night before signing. Asking early gives you, or a real estate attorney, time to check that the default, extension and prepayment clauses match what you were told.
Is this loan recourse, and will you want a personal guarantee?
Why ask it
Recourse means a shortfall after a foreclosure can follow you personally instead of stopping at the property. How far it can follow you depends on the state, so ask how it works where the property is, and whether a spouse has to sign, which pulls household assets into a deal they had no part in choosing.
Would you want a lien on any other property I own?
Why ask it
Cross-collateral lets a lender stretch on leverage by tying a second property to the loan. It also means trouble on this project can reach a house that was doing fine, and you may be unable to sell or refinance that one until this loan is paid.
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. The default rate is often far above the note rate, so have them name it and say from which day it applies. Whether they have ever worked out a late loan without foreclosing is the follow-up.
How often do you end up foreclosing, and what does that process look like for you?
Why ask it
You are listening for whether they would sooner have a repaid loan or the house. A candid lender will tell you roughly how often it has happened and what they tried first. The legal process and how long it takes differ from state to state, so the answer should be about the state the property is in.
Track Record
Does the money come from your own fund, or do you raise it from investors deal by deal?
Why ask it
A lender with committed capital can promise a closing date. One that raises money per deal, or sells pieces of the loan to individuals, can go quiet when the investors do. The scenario to raise is funding that is not in place the week you close.
How long have you been lending, and did you keep funding when the market slowed?
Why ask it
Hard money shops tend to multiply in good markets and thin out in bad ones. Someone who kept closing loans through a slow stretch can tell you what they tightened and why, which is a preview of how they treat a loan that is already open when conditions turn.
Are you licensed to make this loan in this state, and where can I look that up?
Why ask it
Licensing rules for private lenders differ a great deal from one state or country to the next, and some business loans need no license at all. A legitimate lender knows which rule applies to it and can point you to the regulator's public lookup without taking offense.
Who makes the final decision on my loan, and can I speak to that person?
Why ask it
The person quoting you is often in sales, relaying terms from an underwriter or a credit committee. One conversation with whoever decides will surface their real worries about the deal, and it gives you a name to call if the terms move.
How often do your final terms differ from the term sheet, and what usually causes it?
Why ask it
A change blamed on the appraisal or on title in the last week leaves you no time to shop for another lender. Ask which term moves most often, the loan amount or the rate, and whether they will put in writing which items are fixed once the valuation is back.
Do you service the loan yourselves or sell the note, and who will I be dealing with in month six?
Why ask it
The person who promised flexibility on draws and extensions may not be the one administering the loan. If the note is sold or the servicing is handed off, the useful detail is who approves a draw or an extension after that, by name.
Can I speak to two borrowers you funded in the past six months?
Why ask it
Put two things to those borrowers: did the terms change between term sheet and closing, and how quickly were draws paid. Neither appears on a rate sheet. A lender that lives on repeat business and cannot produce two satisfied borrowers is worth wondering about.
Looking at this deal as it stands, what would make you turn it down?
Why ask it
Save this for the end of the call. A lender who has read your numbers will name something specific, such as the comps, the budget or your timeline, and you can go and fix it. 'It all looks great' before underwriting has started is a sales answer.
Working with a Hard Money Lender
Practical guidance for the conversation itself
Before you call
Have the deal in hand
A hard money lender prices the deal first and the borrower second. 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, not 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.
Match the questions to the stage
The First Call group is for screening: ask those of three or four lenders and drop the ones that do not fit the deal. Cost, Qualifying and Rehab Draws are for the lenders still standing once a term sheet is on the table. Term and Default and Track Record are the ones to settle, in writing where you can, before you sign anything.
Check how it works where you are
Licensing, owner-occupied lending, personal guarantees and foreclosure all run on rules that differ by state and by country. This page is a list of questions, not legal or financial advice. Have a real estate attorney who works where the property is read the loan documents before you sign them.
What the lender will ask you
- This list is the borrower's side of the call. The lender has a list too, and clear answers to it are what turn a rate range into a quote.
- The property: address, purchase price, its condition today, and whether anyone is living in it.
- The plan: a scope of work with a budget, a timeline, and who is doing the work.
- The exit: sale or refinance, the value you expect afterwards, and the comparable sales behind that figure.
- You: how many projects you have finished, how much cash you can show, and anything on your credit report they should hear from you first.
- The paperwork: the signed contract, entity documents if you borrow through a company, and insurance once the loan is approved.
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. Interest charged on rehab money you have not drawn yet can outweigh a small 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 honestly complete, and keep photos and invoices organized the way the lender asked. A draw held up over a missing invoice costs you the same days as one held up over unfinished 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. An extension raised with months in hand is an ordinary conversation. One raised at maturity leaves you very little room to negotiate.