Unfortunately there are many unscrupulous players in the private lending arena. The following are five tips to ensure you protect yourself
- Be wary of large upfront fees:
- Any broker or lender who approaches you and states that you will be required to submit a large sum of money (>1/2% of the loan amount) for due diligence (many times these deals never close and the borrower is out thousands of dollars).
- Individuals masquerading as lenders
- Many individuals claim they are direct lenders when in fact they are just brokering the deal to another party without disclosing this to the borrower. It is imperative to understand who the decision makers are in the lending process.
- Full disclosure
- It is imperative that all information is disclosed up front that could materially impact the transaction (tax liens, title issues, and time sensitive issues). Somewhere in the process the lender will discover the information anyway. It is much better to disclose this information up front so that all parties can take the appropriate steps to comprehend and resolve the issues to ensure that there is not an impact on the loan closing.
- Understand the process
- Many lenders/brokers do not fully explain the loan process including document requirements, site inspections, title, environmental, etc… To ensure no surprises, it is critical to understand the process and time required for each step in the process.
- Deal sounds to good to be true
- Unfortunately many lenders and brokers prey on individuals with less than perfect credit claiming that they can repair their credit overnight, get them a loan priced at two points below prime, etc… If the deal sounds too good to be true, trust your instinct and do not proceed with the transaction.