How to Negotiate a Hard Money Loan

Using AI in private hard-money lending offers a wide range of benefits beyond simply automating loan documents and expediting underwriting. The advantages extend past time savings, often helping you secure better loans—or loans that may have been unattainable without AI.

• Assists you in presenting your loan scenario honestly while highlighting its strengths for lender evaluation

• Host competitive bidding among top lenders.

• Submit individual loan applications to each lender for multi-lender bidding.

• Provide regular updates on progress at every stage.

• Offer a centralized platform for document uploads and distribution to multiple lenders.

• Identifies the most suitable hard money lenders based on your specific situation

• Solicits loan quotes from various lenders

• Compare these quotes to find the best option

• Explains the pros and cons of each loan proposal to support informed decision-making

• Clarifies hidden conditions or restrictions within any loan quote

• Negotiates with lenders to improve loan terms

• Tracks all communications

• Researches and verifies lender reputations

• Use AI insights on hard money loans to ensure legal compliance.

This article examines how AI can negotiate with multiple lenders to secure more favorable loan terms. Successful negotiation requires both a thorough understanding of the subject and strong negotiation skills. Hard money loans are complex, involving considerations well beyond just rates and terms—which are seldom among the top three priorities. For those skilled in negotiation, this article outlines when and what to negotiate. However, for individuals who prefer to avoid negotiation yet still seek optimal outcomes, AI advancements now enable automated solutions. It is no longer necessary to have an in-depth understanding of AI or prompt engineering; selecting the appropriate AI tricky money agent is sufficient.

Compare and negotiate offers from multiple lenders.

Why you should negotiate any loan

Well-qualified borrowers are expected to negotiate with lenders, as negotiation is integral to any loan transaction. When approached professionally,
you, being an effective negotiator, can yield substantial savings or leverage the AI revolution to have it negotiate on your behalf.

Residential Fannie/ Freddie, FHA, USDA, and VA loans should be carefully compared and negotiated, in accordance with CFPB guidelines, which suggest comparing offers from three to four lenders and can yield estimated savings of approximately 1%. Due to the highly fragmented nature of private hard money lending, evaluating and negotiating terms with multiple hard money lenders may result in savings of 4% to 7%, as opposed to working with a single lender without negotiation.

Priorities in negotiations

Hard-money borrowers' 1st priority in securing a loan is never the Best Rate and terms; otherwise, it is no longer a hard money loan. Priorities sequence varies by loan and situation. Fastest funding is common, 1^st priority for private loans, but it can be any of the 10 priorities below

Comparing vs Negotiating loans

The process of comparing loans is distinct from negotiating loan terms, though the two are frequently connected. When managed effectively, this combined strategy can yield substantial financial benefits.

With AI, comparing loan quotes becomes effortless. The borrower receives information on the strengths and weaknesses of each quote, helping organize the data for successful negotiations.

Always wait until you have received a written quote before entering negotiations. A Soft Quote should outline all the lender’s approval conditions, detail the required documents, and provide estimates for both approval and closing timelines. Compare these details with your own requirements.

If you receive only a verbal quote from a bank or institution, make sure to put it in writing for use by the AI during your comparison step.

Enter the data from your negotiations into a spreadsheet, then use ChatGPT to analyze and compare the best loan offers. Be sure to review all the loan conditions carefully—sometimes an attractive quote comes with requirements you can't meet, such as needing two years of tax returns you don't have. You'll need to renegotiate or remove such terms.

You can also use Lendersa agent 3.2 for automated comparisons, as it integrates ChatGPT with sophisticated prompts that are not possible to replicate manually.

When to negotiate

Loan negotiations can only happen after you’ve secured the interest and preliminary commitment of lenders. Attempting to negotiate before this point is not only unproductive but might also discourage a promising lender from working with you.

Prior to commencing negotiations, a borrower seeking private financing typically narrows down their options to three or four lenders from a larger pool of interested parties. Identifying and engaging the most reputable hard-money lenders is a crucial component of this process, and we have dedicated a blog post to providing comprehensive information on this topic.

What to negotiate:

• Loan amount or LTV: The loan amount can be crucial. If the lender offers 60% LTV but you need 65%, this is worth discussing.

• Qualification requirements: These may include completing the loan process by providing only bank statements or obtaining approval even if a co-borrower has a poor credit history, among other possible scenarios.

• Speed of closing: If a specific deadline for funding is required, the promptness of closing becomes more critical than rate and terms. Conversely, allowing the lender additional time for document review and thorough inspection can result in more favorable rates and terms.

• Conditional Approval: Certain properties—such as commercial real estate, vacant land, or those valued over one million dollars—can present appraisal challenges. It is advisable to negotiate the loan amount and other related terms if the appraised value differs from the lender’s original estimate.

• Points: Negotiating between 0.25 and 0.5 points is generally acceptable.

• Rate: While you can try for a better rate, it's not crucial on short bridge loans. Prioritize getting the right loan amount, points, and terms; if those are satisfactory, consider asking about the rate—but don't insist too much and focus less on interest.

• Terms: Always request longer terms, since 12 months is often too short. Aim for terms between 18 and 36 months.

• Extension Fee: If possible, negotiate for automatic extensions without extra fees or try to reduce extension costs.

• Prepay penalty: Avoid accepting a loan with a prepayment penalty lasting the entire duration. Try to limit penalties to no more than three or six months. You may need to pay an additional fee to remove the prepayment penalty, which is worthwhile if you know your payoff date.

• Appraisal: Many lenders request their own appraisal, but you can try negotiating with a Broker Price Opinion (BPO) or a recent appraisal report from a different lender. If it's a purchase or the loan-to-value ratio is very low, you might persuade the lender to skip the appraisal altogether, which can significantly expedite the closing process.

• Escrow and Title: Lenders who typically prefer to utilize their own escrow or title companies may be persuaded to consider an existing open escrow to expedite the process, or to accept a current title report that has already addressed any discrepancies.

How to Negotiate with Lenders

Well-qualified borrowers are expected to negotiate with lenders, as negotiation is integral to any loan transaction. When approached professionally, effective negotiation may result in substantial savings.

Two negotiation methods are:

A. Emphasize key strengths of the loan application

B. Compare approval offers from other lenders

Both methods should be applied when there are competing lenders.

From lenders' perspective, the principal concern with hard money loans is not simply ROI but security—specifically, the assurance that capital can be recovered if the loan defaults. While hard money lenders are prepared to acquire the underlying property in the event of borrower default, this action is typically considered a final measure to recoup invested funds.

Generally, regardless of loan-to-value ratios, lenders will refrain from extending credit if they anticipate significant risk associated with either the property or the borrower. Consequently, applicants are advised to present the strongest aspects of their loan applications to demonstrate, unequivocally, the security of the proposed loan. The following examples illustrate how borrowers can highlight the strengths of their loans during negotiations:

• Exceptional property location, such as proximity to major landmarks (e.g., within 100 yards of the new City Mall, offering a superior 270-degree ocean view)

• Low Loan-to-Value (LTV), for example, less than 65% LTV or only 55% LTV supported by an MAI appraisal

• Excellent credit scores, such as an 820 mid score, or all borrowers having scores above 750

• Clear and uncontested exit strategies, such as multiple offers to purchase the building ranging from $2.5 to $2.8 million

• The local real estate market is showing signs of improvement; for instance, according to the Wall Street Journal, property values in Miami Beach are projected to increase by 7% next year.

• Property value growth is assured; for instance, we've secured a 10-year lease with the City of Orange, or already have two interested tenants for the two-bedroom apartment.

• A proven track record is crucial for rehab, construction, or fix-and-flip loans. Describe your recent rehab project and highlight the profits you earned by successfully resolving permit issues or engineering challenges.

By strategically presenting these and similar qualities, borrowers can strengthen their negotiating position with lenders.

Ideally, if you have two or more lenders who are very interested in your loan, you can use favorable terms from one lender as leverage when negotiating with another to secure a better loan offer.

More Negotiation Tips

Experienced lenders often respect borrowers who negotiate assertively for better loan terms, as this suggests responsibility and a lower risk of defaulting. While it's important to advocate for yourself during negotiations, avoid making excessive demands or constantly shifting your requests, as this could jeopardize the process.

Respond promptly to any calls from the lender and provide all requested documents to maintain clear, effective communication.

Always be honest about your income, expenses, and credit. If lenders discover any false information during underwriting, they will end the process.

Disclosure requirements for hard money loans may vary; in some cases, disclosure of income and financial circumstances is not mandatory. If the lender does not request specific information, there is no obligation to provide it proactively.

Appraisal Issues—With hard money loans, the property's value is central to loan approval. However, an appraisal report provides only an opinion of value. In purchase transactions, the purchase price is typically the most reliable indicator of property value, provided the transaction is conducted at arm's length and there are no conflicts of interest. The lender must still request an appraisal to ensure you are not paying above market value.

When soliciting valuations from ten different appraisers for a refinance loan, one can expect to receive ten distinct assessments of value. For tract homes, the variance among appraisers typically falls within a 10% range; however, for commercial properties, land, and custom homes valued above $1 million, discrepancies may reach up to 30% between appraisers.

Negotiation Mistakes That Can Ruin Your Best Chance.

Even if just one lender expresses interest in your loan, you can aim for a better deal by negotiating with them. Be ready to walk away if necessary, then search for other lenders or reconsider their offer.

Many hard money lenders are private investors or rely on funds from individual investors. These investors can be unpredictable, though they typically act rationally. They might agree to finance a borderline loan if they have a favorable impression of you. However, if you anger them with unreasonable negotiations, they will quickly withdraw their support.

Keep in mind that you'll often encounter loan officers eager to assist you to earn their commission; however, they are not the ultimate decision-makers when it comes to approving your loan.
For this reason, a written loan approval signed by the lender is more reliable than verbal promises from loan officers. While loan officers may not intentionally mislead you, they might not have all the information and often present the most optimistic scenario to encourage you to proceed and pay for an appraisal.

Do not pay for an appraisal unless:

A. You have received a signed written term sheet from the lender.

B. You have researched the company and obtained references about their performance from independent third parties.

Leveraging AI for lender negotiations

Loan Negotiation is not an option- it is an important step in getting a loan. The question is do you want to do it yourself or let the AI do it for you

AI can help you negotiate with lenders more effectively. You have the option to handle talks on your own or use AI to do the negotiations for you. agent to assist you. The AI reviews conditional approvals, comparing them to each other and to industry standards for similar loan requests. Next, it drafts an email highlighting key negotiation points for you to approve and send to your lender. For successful AI-driven negotiations, provide a precise prompt along with complete details about your loan request and the offers from lenders.

You could use AI agent like Lendersa 3.2 to prepare emails to each lender with key points you wish to negotiate. The AI will customize separate emails to each lender, containing the issues the AI deemed worth negotiation.

Ultimately, it is still more effective
through a Zoom or phone call.

Lendersa AI is designed to secure better loan terms by using its built-in prompts and all relevant data about you, your property, each lender’s quotes, and every communication you’ve had. Your role is simple: click “Negotiate with [Lender Name],” and if you’re satisfied with the AI’s draft, just hit send—the message goes instantly through the portal.