Contrary to many people's opinion, not all private lenders on Facebook are scammers. That said, there are a lot of bots and scammers on Facebook claiming to be private lenders.
We market on Facebook and send DMs to people who have indicated transaction intent. It’s actually a great place for real lenders to qualify borrowers and cost effectively acquire clients.
The only fee a borrower may justifiably pay prior to closing is appraisal (we require insurance premium to be paid in full prior to closing but that is charged by the insurance broker/carrier).
Start with a Google search of the lender by name and company name. Read reviews, read their website, LinkedIn, Facebook page. Hard to find these resources? That might be a first sign they are either not legitimate or not experienced.
If there are no glaring red flags, request a quote from the private lender. Remind yourself of the old adage: if it's too good to be true, it probably is...
If you are a new real estate investor and this is your first time vetting private lenders, here are some things to be aware of:
The most leverage a legitimate lender will offer is typically 90% of purchase price and 100% of rehab costs for experienced borrowers. Lenders want you to have skin in the game. If a person you met on Facebook it telling you they can offer 100% LTV, you should probably not proceed.
We are purposely mentioning this a second time because it is far and away the most common scam. You pay an upfront fee and then poof! They're gone.
If the quote is reasonable -- see Bridge Loan Index and DSCR Rental Loan Index our publications of prevailing interest rates and origination fees from private lenders -- have a conversation with the lender to review terms and program(s) and how their loan processing works.
If you have an uneasy feeling, ask for references and ask about their experience as a lender. How many deals have they funded this month, in your city, state, etc.
Don’t force it, listen to your intuition. This is an important transaction and vetting process, it's good to be on-guard. If you feel uneasy, there are many other options which would serve as a good frame of reference to strengthen your BS detector. If you have colleagues who work with private lenders, ask for recommendations.
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