It may seem obvious, but nobody just googles the term "hard money loan" and gets the money they need for a home or remodel. There is a process to follow, as with any loan. The fact that hard money loans are faster and require less paperwork than a standard mortgage from big banks does not mean that it is easy or without a process. Here are the five steps to obtaining a hard money loan.
Step One - Find the Property You Want
If you're looking to remodel an existing property, this step is unnecessary. But if you're trying to buy a new home, you will need to know what you want to buy before you secure a hard money loan. The price, value, current state of the property and other factors will matter to your hard money lender when you apply.
Step Two - Determine Price & What You Can Pay
This seems obvious but many people seek out loans without doing the math first. Before asking for a hard money loan, it is helpful to know how much you need to borrow and how much you can afford to pay on a monthly basis in order to pay the loan back.
Step Three - Hedge Your Bets, Apply With Several Lenders
It can't hurt and you may as well shop your loan the way you might with a standard mortgage. Not all lenders are the same, not all look for the same things in an applicant and seeing the responses from more than one can also help you negotiate final terms with the one you decide to go with.
Step Four - Get the Paperwork Before Closing
This is just common sense but many people do not realize they can ask for this. Before arriving at a closing appointment, ask the lender or the title company agent to provide a set of documents ahead of time so that you have time to read everything without the pressure of sitting in the office with others. Take the time to do the math, understand what you're really expected to pay over time and know exactly how the loan works if you should happen to fall behind.
Step Five - Close Your Loan Like Any Other Loan
This means you should expect to sign your documents at a closing appointment, in a title company's offices. Treat it just like you would a standard mortgage from a big bank. This shows the lender that you are taking it seriously but more importantly, it helps ensure that your documents are legitimate and that your lender works with others in the industry. If closing in a title company is not an option then reconsider the paperwork and look closer at your lender. These are important factors in protecting yourself legally.
Finding special financing options does not mean you don't have a real loan. Treat this like you would with a big bank. It helps you and your lender to know that everything is on the up and up. Following basic procedures can also help protect you from any predatory lenders than might not be open to following the law. It is up to any borrower to keep that layer of protection in the process, all the way through closing.