For borrowers and mortgage brokers, the chances of needing to deal with private lenders (hard money lenders) at some point during your search for a loan are becoming greater by the day. Unfortunately, outside of real estate professionals that deal with hard money lenders on a regular basis, very few individuals are skilled at communicating and selling these lenders on their credit-worthiness. The result is a bag of mixed responses from private lenders and a lot of frustration on the part of both mortgage brokers and their clients.
So why is it so difficult to communicate with hard money lenders? They’re a tricky bunch because almost none of them are the same. What works for one lender won’t necessarily work for another, and they interpret information in a myriad of different ways. Going around in circles with private lenders can make your head spin and eventually make you think that getting approved for a hard money loan is more difficult than finding a needle in a haystack. But what if you could greatly increase the odds that your loan request will not only get a favorable look from almost all hard money lenders but also increase your overall odds of getting an approval?
There’s a phrase that floats around the private lending arena: “character counts.” The reference is to the character of a borrower, of course, but what constitutes character is defined a number of different ways. For some lenders it means knowledge and experience. Does the borrower seem to have the know-how to move their project to fruition? For other lenders it means mortgage history. Has the borrower ever chosen to walk away from a loan? And for others it almost literally means character. Does the borrower seem to be upstanding, moral and willing to accept responsibility?
We can’t discern what character is going to mean to every lender, and we can’t change who the borrower is. However, there’s an aspect to the term “character” that seems to be nearly universal in the world of hard money loans that you absolutely can control. You have the power to determine how private lenders are going to perceive you or your borrower, whether they consider you to be “a hassle to deal with,” or if your files come across with promise and potential. The trick is to know how to communicate with private lenders, and while some of these tips may seem trivial, not accounting for them can be the difference between an approval and a rejection.
1. Be Clear With Your Information
Most private lenders are going to require some sort of executive summary from you, which means that you’re going to have to do some amount of explaining as to why you or your client deserves a loan and how the loan structure will provide a win-win scenario for borrower and lender. Not providing information that’s clear and concise can be an absolute deal breaker, especially when the deal is more complicated, as many commercial scenarios are. Information that isn’t specific, is ambiguous, or is money monkey directly in conflict with other information that you’re presenting causes a lender to have to ask questions (assuming they don’t just turn you down). When a lender has to ask questions to decipher your information it takes up their time. The more time they have to take just to understand your information the less time they have for everything else. The less time they have for everything else the less productive they are. So the result is that they’re more likely to brush over your loan request or just reject it all together, assuming that it probably wasn’t worth their time in the first place.
2. Check Your Facts
No matter how busy you are, you have to find time to completely understand the loan request that you’re submitting to a hard money lender. If your file gets reviewed and you’re asked follow up questions you’re going to be expected to know the answer to anything basic. If you don’t know the answer already your credibility is going to take a hit. The lender is either going to perceive you to be a “paper pusher” or a disinterested participant. You may not have any real motivation to see the deal through other than for the prospect of a commission. The result will be a whimsical second look at your information that will probably result in a rejection. After all, why should the lender spend their time if it clearly wasn’t worth yours? Lenders accept files from brokers because they provide a valuable service: an initial screening of borrowers’ files that categorizes them as either having potential to be funded or not worth the time. Make sure that you don’t forget to do your job, because nobody is going to do it for you in this market.