How To Negotiate Better Hard Money Lending Terms That Suit Your Needs

Lender giving money to borrower

In the United States, the median home price comes to about $200,000. While investment homes in need of full renovations often cost less, most traditional lenders aren’t always willing to take on such risky houses.

Hard money lending providers allow you to get the money you need to finance your fix and flip project. However, those loans often come with higher interest rates and shorter loan terms than those provided by traditional mortgages.

Luckily, you may be able to negotiate those terms at least slightly. Here are a few tips to help you get the best terms possible.

Be Ready to Invest in the Right Property

When you apply for a traditional loan, the lender looks at your entire financial situation to decide how much they want to lend, if they lend anything at all. The higher your credit score and the lower your existing debts are, the better off you’ll be.

With a hard money loan, lenders don’t focus solely on your credit score. They instead determine how much money they’re willing to give you based on the property you’re buying.

The property is what backs the loan. If you default on the loan, the lender can take possession of the property. Once they do, they can sell it to make up for the money you borrowed.

The more desirable and valuable the property is, the more likely you are to qualify for better hard money loan rates. Before you start negotiating, be cautious about the properties you invest in.

Choose ones that offer the highest potential return and use this to your advantage when discussing your options with lenders.

Research the Lender

The best way to negotiate with private money lenders is to research their reputation. See what types of projects they’ve backed before and get an idea of how much they’ve loaned in the past.

The best place to start is by asking for previous clients’ testimonials. Don’t hesitate to ask each lender you’re considering working with for references.

Reputable lenders will have a list of previous clients that are happy to discuss their experiences with you. Once you have those names, follow up with them and discuss the types of terms they had on their loans.

This will give you an idea of what you can expect with the lender and may give you insight into the types of rates you can negotiate with them.

Create a Detailed Project Plan

Most people approach hard money lending companies and professionals because they want to invest in a piece of real estate that they want to fix and flip. It’s often used as a type of business loan and you should treat it as such when you start negotiations.

The best way to do this is to create a detailed plan for your property. Illustrate the types of improvements you’ll make and try to create a timeline for each part of the project.

This will give lenders an idea of where their investment stands if you end up defaulting.

If you plan to sell the property once you’re done with renovations, find ways to justify the resale value by comparing the building against other similar ones in the area. Look at recent sales and point out the amount of profit the property can earn.

You’ll also want to outline how you’ll repay the loan in full by the end of the loan’s terms. Illustrate how you’ll come up with the money and draft a repayment plan that you can show the lender at your meeting.

When it’s clear to them that you’re responsible and know how the process works, you’ll be more likely to get better hard money loan terms.

Use Your Good Credit Score If Possible

Just because most hard money lenders don’t rely on your credit score to decide if you qualify for the loan doesn’t mean you can’t use it. If you have good personal credit or have an established business credit score in the real estate industry, let the lender know.

Great personal and business credit scores mean you always pay your bills on time and don’t have a history of defaulting on loans. This makes it more tempting for them to partner with you and lend you the money you need.

However, if your credit score is low, don’t let them know. Let the value of the property do the talking for you.

Read the Terms in Detail

The easiest way to negotiate better loan terms is to make sure you understand the terms you’re offered first. Read through each estimate you receive and look at any documents the hard money lending professional sends your way prior to meeting with them.

Compare those terms to the ones they offered their previous clients. If they’re in line with what others received, you may not be able to negotiate the terms very much.

However, if the quote you receive has a higher interest rate or includes higher fees than other loans, point those factors out.

Always Be Respectful

Remember, when you negotiate with a hard money lender, you’re negotiating with a private lender. This means they’re not backed by a large financial institution. Instead, they’re loaning you money and investing in your project with their personal funds.

When you speak with them, remember that it’s their money on the line. They won’t have the flexibility that traditional lenders have.

If you feel that their terms aren’t in line with what you can afford and the lender isn’t willing to negotiate, thank them for their time and keep looking.

Negotiating Hard Money Lending Terms Is Simple

Hard money loans give you an easy way to get the money you need without having to deal with large banks. However, since you’re working with private individuals, the hard money lending terms each lender offers will vary.

If you feel that you need to negotiate terms with a lender, do it. Just remember to present your case clearly. It's up to you to prove that your property and project is worth more than what they’ll lend you.

Looking for more helpful tips to make your next fix and flip project a success? Check out our latest posts.


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