Hard money loans are an excellent option for investors who need large sums of money quickly to take advantage of profitable opportunities before they slip away. Unlike traditional lenders that require a much longer timeframe before releasing funds, hard money lenders can get money in your hands quickly with little risk since the loan uses the property as collateral.
Unfortunately, not all hard money lenders are held to the same regulatory standards as traditional lenders. This means that there are loopholes that can be exploited by unscrupulous lenders looking to profit off of their customers’ desperation. Thankfully, it’s not hard to spot scammers if you know what signs to look for.
Read on to learn some scams to be safe in your dealings.
- Shady Rate Structure
- Abbreviated Application Process
- Phantom Lenders
Shady Rate Structure
Shady lenders and scam artists often use numerous tricks, lies, and schemes to get you to sign on the dotted line for a hard money loan. One common trick is offering a very low rate upfront to lure borrowers into the trap. However, these rates are often lower than what the APR will be. Additionally, many shady lenders will not give you an APR upfront so that they can inflate the rate later after you’ve signed on. Ensure that you are working with a reputable lender who operates according to honest and fair business practices by researching reviews and conducting independent research into the company before signing any documents.
Abbreviated Application Process
The abbreviated application process is one of the benefits that hard money lenders offer. While there is still an application process with lenders, they will usually allow you to start working on your transaction without jumping through hoops. If the lender you’re considering doesn’t require a formal application before providing funding for real estate transactions, they could be something wrong.
Find a reputable hard money lender by using internet search engines. Look for a company that is well-reviewed and active in your local area. A lender with good business practices and ethical lending standards will want to know its name.