Questions to Ask When Private Mortgage Loan Shopping

Anyone who has shopped around for a private lending company knows the vast number of options out there, and unfortunately, all too many people know how quickly you can get burned by choosing the wrong one.  Read on to learn the best questions to ask any firm under consideration.  

May I contact your references?

Always look into a company’s reputation, both from references and online.  The more previous clients you can connect with, the better idea you’ll have of this person’s character and process.

Obviously, online reputations are important, but don’t let one negative reviewer deter you from considering a lending company.  Just as multiple previous clients’ opinions are important to gathering a snapshot of a lender’s moral and professional practices, if multiple online reviews are not available be sure to quantify candidates in other ways as well.  

May I contact your boss?

Know whether or not you are speaking with the true decision makers or if you are speaking with a gopher who doesn’t have a real interest in your needs or concerns.  The speed, fluidity and reliability of the transaction have a very real dependency on the relationship this person has with the money that is exchanging hands.

What are the hidden fees?

There are myriad ways that extra fees can sneak into your loan, making your once thought great deal into a money-suck.  Know upfront whether or not there are prepayment penalties (owing money for paying off your loan prior to the expiration date), backend fees (owing extra money once the loan is paid), application fees, and whether or not expenses like legal, document preparation, and appraisal are going to fall on your shoulders after signing the loan agreement. Lenders may charge all, some, or none of these fees – but it’s imperative you know what you’re paying for prior to signing and to factor those extra fees into the overall viability of the loan.

Do you have that in writing?

Make sure to require your lender to be transparent from the start.  Trustworthy lenders will provide you with a term sheet (loan proposal) so that you can see the full terms of the loan in advance, and in writing.  Be sure that answers are always consistent and clear.  It is important to make sure that everyone knows what they are getting in advance so that there are no surprises at the closing table.

How is the interest calculated?

There may be phases to your investment that will determine your ability to pay the loan back.  For example, is interest calculated differently during the construction phase than other phases of your property?  Make sure that you’re clear on what money you will owe and when.  A clear payment schedule is also a valuable asset to planning your loan appropriately.  

Private mortgage loan shopping is serious business, one that can make or break your personal wealth.  Take the time to find the right lender and you could be reaping the rewards of your investment for years to come.