“You Don’t Know What You Don’t Know…”
Have you ever filled out a loan application or jumped into a financial agreement without ‘really’ understanding all the key terms of the loan?
Do you always read ALL the fine print?
If you’re like most people, you will never learn everything there is to know about real estate and financing. Laws and lending regulations are constantly changing, so it’s tough to keep up with everything – even for licensed brokers.
You will never know everything. That’s why there is a good chance that you may not know exactly what kind of things you should be asking when it comes to getting a loan in today’s economy.
Fear not, my friend! Here’s some good news for you…
I’ve put together a list of 5 important questions you should ask a Loan Officer or mortgage broker when you’re thinking about getting a real estate loan through a private money lender.
These questions will make you a smarter consumer and help you ‘really’ understand what a lender may be offering you. This information applies to our current market as we head into 2014.
(It also applies for both purchase transactions and refinances.)
5 Smart Questions to Ask a Private Money Lender
1. Do you charge any up-front fees?
An example of an upfront fee is when a mortgage broker charges you for items such as an Application Fee or Credit Report Fee before you actually get a loan approval. They are out-of-pocket expenses whether you choose to go through with the loan or not.
Many brokers will not collect any fees up front, so you shouldn’t have to make an out of pocket expense just to get pre-qualified while you explore your loan options.
2. Do your loans have any pre-payment penalties?
A prepayment penalty is a fee that is charged when you pay off the loan before its maturity date. An example of this would be if you paid off a 5-year loan in only 7 months.
If there are any fees for paying your loan early, make sure you understand the terms and potential fees before you sign your final loan documents.
If the loan you are being offered does not have a prepayment penalty, this should be clearly written in your final loan documents.
3. What fees can I expect to pay?
Loan fees vary from broker to broker, and lender to lender. But here are the common types of charges you might see on your loan estimates.
Please note that all lenders and brokers do not charge you for every item listed below. (The fewer items that a company charges you for, the better.)
- Origination Fee
- Broker Fee
- Underwriting Fee
- Processing Fee
- Document Preparation Fee (Also known as Doc Prep)
- Credit Report Fee
- Appraisal Fee
If you don’t understand what a certain fee is for – ask!
Each fee should be clearly listed so you know exactly what you are paying for – and why.
4. Will I need to pay for an appraisal?
Generally speaking, most loan applications will need a complete appraisal to be done on the property that will be used as the collateral for the loan.
The good thing is that you don’t necessarily need to have an appraisal in hand just to get pre-qualified. You can actually start the loan process based on an estimated value of your property.
Just keep in mind that you will most likely need to get a full appraisal as soon as you’re ready to move forward and get a formal loan approval.
5. Can you give me an estimate of terms and conditions before I submit a full application?
Many people have heard of the official document known as the Good Faith Estimate (GFE). This is a formal estimate that your mortgage broker or lender provides you after you submit your formal loan application.
But what if you want to get estimated loan terms in writing before you officially apply for the loan?
Ask your broker if he or she can send you an informal initial estimate in writing. This would obviously not be as formal and binding as the GFE, but you will get a good sense of the broker’s willingness to be open and up-front with your questions about fees and loan terms.
An experienced mortgage professional should be able to give you a good overview of the interest rate, loan term, and potential fees based on a conversation or detailed loan scenario. At least you will have a general sense of how much a potential loan will cost you.
I hope this article has been helpful to you and hope that it answers some of your initial questions about private money lending.
Free E-Book Offer
To help you learn even more about Private Money, please be sure to get your free copy of our e-Book: “How to Get Funding When Banks Won’t Lend.”
After reading this FREE e-book, you will know if private money makes sense for you or not.
Related Posts You Might Like:
- Why Nobody Wants Private Money Loans
- The 5 Myths of Private Money Loans
9 Critical Lending Terms You Absolutely Must Know About Your Private Money Loan (Learn these and you’ll avoid last-minute surprises)
- Are Interest Only Loans Good or Bad?
- Why Would Anyone Want a Private Money Loan?
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