Capital Max | Eight (8) Signs You Have a Bad Hard Money Lender

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hard money lender

Getting a hard money loan can be highly advantageous for many people who need to fund a real estate project quickly. While you might be thinking, “what is a hard money lender, and how does hard money lending work?” hard money loans are highly flexible, can close faster, and offer a more seamless approval process. Unlike traditional loans, they make lending decisions based on your equity instead of your income, personal credit, or tax returns.

Unfortunately, hard money loans are not as regulated as traditional loans, so they can be a dicey situation, especially if things go south. Like many industries, not all hard money lender are the same— a few unscrupulous lending operators might try to deceive you and fleece you of your money.

Here are the top 8 signs to look out for:

Unrealistic Time For Approval

One of the easiest ways to spot a bad hard money lender is the promise of guaranteed approval. Although a hard money loan is the fastest loan to approve, this will still take some time as lenders require an assessment to determine your eligibility, which requires detailed documentation and information.

Legitimate lenders always assess the creditworthiness of the borrowers before agreeing to a conventional loan, making it impossible for immediate approval without an evaluation. If the loan is guaranteed instantly, this is an indicator that your private lender might be fraudulent.

Extremely Low Interest Rates

Many loans require a borrower to have strong collateral, substantial equity, good credit, or a combination. If you have none of them, it’s unlikely that you’ll qualify for any type of loan financing. If a hard money lender starts to promise you loan financing at meager rates regardless of your qualifications, you might be dealing with a scammer.

Advance Fees and Hidden Costs

Advance-fee loans are a common type of scam. Certain organizations might promise a loan to applicants without considering their equity or credit score. However, they’ll ask you to pay a processing or advance fee. They might also ask you to pay through a method that’s impossible to track and refund, such as prepaid cards or wire transfers.

Costs like these are usually buried in the agreement’s fine print and should set off your alarm bells, especially if they are payable before you receive the loan. A reputable hard money lender don’t insist on the payment of advance fees but will deduct them from the loan amount.

If you get approved for a loan only to be asked for an advance payment, it’s probably a fraud, and you should walk away.

Pressure To Act Immediately

Some hard money lender employ high-pressure tactics to convince applicants to make hasty decisions without thinking. This is usually in the form of limited offers and a sales approach with consequences if they are not instantly accepted.

While it is important to respond to your lender promptly—especially if time is of the essence—any lender pressuring you to commit to a loan right from the start is likely a scam. Legitimate lenders value informed decision-making and are usually willing to give people all the time they need to weigh their options carefully.

Vague Lender’s Website

A legitimate hard money lender should have a comprehensive website that contains all the loan types they offer, company history, customer reviews, success stories, and more. If your lender’s website isn’t detailed, it could be because they aren’t genuine lenders. 

Fake lenders quickly create new websites, which are usually superficial and empty, to attract new customers. Ensure you review each hard money lender’s website to get a feel of what they offer and determine whether or not they are legitimate. You can also look through Yelp to find out what others say about the lender.

Referral Type of Lending

Although some companies market their organization as hard money lenders, many just do referrals. Worse, they can collect some money to help you find a lender and do nothing at all.

You need to find a hard money lender who can give you the cash whenever needed. You’ll also need to confirm potential lenders and how they generate revenue. If you don’t get a clear and specific answer, all they do might be referrals, and it might be time to move on.

No Registration or License

If you suspect your money lender is a scam, one of the easiest ways to confirm this is to verify whether they have regulatory compliance licenses. 

Lending companies have to comply with several consumer protection agencies, such as the Consumer Financial Protection Bureau (CFBB), and own a license to be able to operate. If your lender can’t verify its operational license status, you might be working with a scammer.

You can confirm this by contacting financial service regulators and your state attorney general to confirm if they are registered in your state. If their license isn’t listed, do not do business with them.

Unsafe Websites Requesting For Personal Information

You should ensure that any website that requests your personal or financial details is safe. Look for security indicators, such as the HTTPS sign on the website address instead of the HTTP. A padlock icon should also be on the browser, which signifies a secure connection.

Websites of lending companies should be secure as many personal details will be transferred through the website. If you feel uncertain about a website’s security protocols, listen to your gut feeling and do not fill out their forms.

How to Find a Reputable Lender

There are a great number of resources at your disposal that can empower you to determine if the lender you want to borrow money from is legitimate. These include public records that help you identify the lender’s red flags, and tools specifically designed to help you determine legitimacy. By conducting thorough research, you can take control of your financial decisions and protect your real estate project.

Interact With The Hard Money Lender

Once you have decided to get a hard money loan, look for a lender with whom you can build rapport and personal relationships. Go through their websites to find previous projects and learn about their mode of operation. 

You can also contact someone else at the company to ask other questions you might have about their lending practices. Don’t be afraid to ask the hard questions as long as they prove legitimacy.

Search the Hard Money Lender Through The BBB Database 

You can perform an online search on the Better Business Bureau to check a hard money lender’s authenticity. If you see “Not BBB accredited,” this means the lender isn’t legitimate and isn’t worth investigating further.

The Better Business Bureau also offers a letter rating and access to customer reviews and complaints. While reading other customers’ perspectives and insights might be beneficial, they are neither endorsements nor censures. However, if a red flag is raised, you might need to proceed cautiously.

Contact Your State Attorney General 

Even if things look solid, you might still want to go an inch further. Contact your state attorney general to see if a lender is registered with the state. Lending companies are legally required to register with the state they will be working in, which is a very effective way to investigate.

Ensure That Their Contact Information Matches On All Platforms After scrolling through their website, pay attention to their contact information, such as their numbers, physical addresses, and P.O. Box, and check if it matches on all platforms. You can also crosscheck with Google Maps to verify if such addresses exist.

Beware of businesses that list only P.O. boxes but no contact number. Many illegitimate lenders use P.O. boxes as their only contact information to avoid being contacted by prospective customers.

Choose Capital Max As Your Trusted Hard Money Lender 

Need funding for your real estate project? Look no further than Capital Max. With years of experience and a proven track record of successful loans, we make getting the capital you need quickly. 

Our loan financing is straightforward, honest, and tailored to your needs. There are no hidden fees or complex processes. Apply now and get approved quickly so you can focus on making your real estate vision a reality. Trust Capital Max to provide the funding you need when you need it.