Questions to Ask a Hard Money Lender Before You Accept Terms

A lot of borrowers compare hard money quotes the wrong way. They look at the headline rate, assume the cheapest option is the best one, and only discover the real cost when the file is deep in underwriting. The truth is that a 10.5% loan from a lender who funds draws in 3 days is often cheaper in practice than a 9.5% loan from a lender who takes 3 weeks to release each draw.

Why? Because draw delays extend your project timeline. Every extra month of holding a $200,000 loan at 9.5% costs $1,583 in interest, plus taxes, insurance, and utilities. Two draw-related delays totaling 6 weeks can add $4,000-$6,000 in carrying costs that wipe out the 1% rate savings and then some.

The right hard money lender is the one that can actually execute the type of deal you are doing. That means asking about timeline, leverage, draw administration, extension terms, fees, and how the lender behaves when a project hits a bump. Those answers usually reveal more about total cost than the headline rate ever will.

These questions help you understand whether the lender can actually do your deal, and whether the term sheet you receive will survive underwriting.

1. What leverage range is realistic for my specific deal? A lender quoting 90% LTC as their maximum does not mean your file will get 90%. Ask what leverage is typical for your property type, location, and experience level. A first-time borrower on a suburban single-family flip might get 85% LTC. An experienced operator on the same deal might get 90%. Knowing the realistic range before you submit prevents surprises.

2. What typically causes loan proceeds to shrink after the initial quote? This is the most revealing question you can ask. Common answers include: the appraisal coming in below the contract price, the ARV not supporting the LTC-based loan amount (the LTARV cap becomes binding), the rehab scope being deemed too aggressive, or the borrower's liquidity or credit falling below guidelines. A lender who answers this specifically is telling you where to focus your file preparation.

3. What property types or deal structures do you avoid? Some lenders do not touch condos, mixed-use, rural properties, or heavy structural rehabs. Others will not lend in certain states or below certain loan amounts. Finding this out on the first call saves you from investing two weeks of effort into a file that was never going to close.

4. Do you use an internal appraisal, a BPO, or a full third-party appraisal? The answer affects both cost and timeline. A full appraisal costs $400-$600 and takes 7-14 days. A BPO costs $150-$250 and takes 3-5 days. Some lenders use internal desktop valuations that are faster but may not be accepted if you refinance later. Know what you are paying for and how long it takes.

For fix and flip and construction files, post-closing draw management is where the lender relationship is really tested. A fast close means nothing if every draw takes three weeks.

5. How do I request a draw, and how long does it take to get funded? The best lenders have a documented draw process: submit photos and a draw request form, a third-party inspector visits within 2-3 business days, and funds are released 1-3 business days after inspection approval. Total time: 5-7 business days from request to funding. Some lenders take 2-3 weeks per draw, which can stall your contractor, delay material orders, and extend the project by months.

6. How much does each draw inspection cost? Draw inspections typically run $150-$250 each. On a 4-draw schedule, that is $600-$1,000 in inspection fees over the life of the loan. Some lenders bundle this into closing costs; others charge per draw. Ask upfront so you can budget accurately.

7. How many draws are allowed, and can the schedule be adjusted? Most fix and flip loans include 3-5 draws tied to completion milestones. Some lenders allow more frequent draws on larger rehabs. If your rehab is $80,000 and the lender only allows 3 draws, each draw releases roughly $26,000, which means you may need to float significant costs between draws. Ask whether the draw count and schedule can be adjusted to match your actual construction timeline.

8. What happens if I need to change the scope of work mid-project? Scope changes happen on nearly every rehab. You open a wall and find knob-and-tube wiring. The permit office requires an upgrade you did not anticipate. A good lender has a process for scope change approvals that does not require restarting the entire underwriting. Ask how scope changes are handled, how long approval takes, and whether additional funds can be added to the escrow.

Almost every investor eventually has a project that runs past the original timeline. Permits stall, contractors slip, inspections get delayed, or the resale market softens. Knowing the extension and payoff terms before you close is critical.

9. How do extensions work, and what do they cost? Most hard money loans offer one or two extension options built into the loan documents. Typical extension cost is 0.5-1.0% of the loan amount per extension period (usually 3-6 months). On a $200,000 loan, a 1-point extension costs $2,000. Ask whether extensions are automatic or require approval, whether the loan must be current to extend, and what happens if you need more time than the extension covers.

10. Is there a minimum interest requirement or prepayment penalty? Some hard money lenders require a minimum of 3-6 months of interest regardless of how quickly you pay off the loan. If you close a flip in 4 months but the lender requires 6 months of minimum interest, you are paying for 2 months of interest you did not use. On a $200,000 loan at 11%, that is $3,667 in unnecessary cost. Other lenders allow prepayment with no penalty after month one. This is a meaningful difference on fast-turn projects.

11. What happens if the loan matures and I have not exited? Ask whether the lender charges a default rate after maturity (commonly 18-24%), whether they immediately initiate foreclosure, or whether they work with borrowers to arrange an orderly exit. The answer tells you a lot about how the lender operates when things get difficult. A lender who starts foreclosure proceedings on day one after maturity is a different partner than one who works with you on a 90-day exit plan.

12. Can I pay off the loan early if the flip sells faster than expected? This is related to the minimum interest question but worth asking separately. If your deal closes in 3 months, you want to confirm there is no penalty or extra cost for early payoff. The best terms allow full payoff at any time after 30 days with no additional fees.

If speed is the reason you are using hard money, you need to know exactly how fast the lender can execute.

13. How many days do you need from a complete file to a funded closing? Do not accept vague answers like 'we close fast.' Ask for the specific number. Most organized hard money lenders need 5-10 business days from receipt of a complete file to funding. Some can close in 3-5 days for repeat borrowers with clean files. The key word is 'complete file.' A lender who quotes 7 days but takes 5 days just to review your initial submission is really a 12-day close.

14. Who orders the appraisal and title, and can I use my own title company? Some lenders require you to use their preferred title company and appraiser, which can add cost or slow the process if those vendors are backed up. Others allow borrower-selected vendors as long as they meet lender requirements. If you have a title company you trust who can close quickly, confirm that the lender will work with them.

15. What does a complete loan package look like from your side? Ask for the full document checklist on the first call. A well-organized lender will give you a specific list: purchase contract, entity docs, bank statements, rehab scope with contractor bids, insurance quote, photo ID, and authorization forms. Having this list upfront lets you submit a complete package on day one, which is the single most effective way to accelerate closing.

The true cost of a hard money loan is not just the interest rate. Ask these questions to understand the full picture.

16. What is the all-in cost of this loan on a 6-month hold? Ask the lender to calculate the total dollar cost assuming a specific hold period. Include origination points, interest, draw inspection fees, appraisal cost, document preparation fees, wire fees, and any other charges. On a $200,000 loan at 11% with 2 points over 6 months, a rough total cost looks like this: - Origination: $4,000 - Interest (6 months): $11,000 - Appraisal: $500 - Draw inspections (4 draws): $800 - Doc prep/legal: $750 - Wire/admin fees: $250 - Total: approximately $17,300

Now compare that to the same deal at 10% with 3 points from a different lender: - Origination: $6,000 - Interest (6 months): $10,000 - Appraisal: $500 - Draw inspections: $800 - Doc prep/legal: $750 - Wire/admin fees: $250 - Total: approximately $18,300

The 'cheaper' rate actually costs $1,000 more because of the higher origination. This is why you need to compare total cost, not headline rate.

17. Are there any fees not listed on the term sheet? Ask specifically about processing fees, underwriting fees, wire transfer fees, document preparation fees, and post-closing administration fees. Some lenders bury $1,000-$2,000 in miscellaneous fees that do not appear on the initial quote. A transparent lender should be able to give you a complete fee breakdown before you submit an application.