1) Sourcing Lenders

• Local deal ecosystem: Title/escrow officers, appraisers, real estate attorneys, mortgage brokers, and experienced investors are valuable sources for finding active, reputable lenders.  For instance, a real estate attorney might refer you to a lender they’ve worked with on similar projects.  Their referrals can significantly enhance credibility and trust in your lending relationships.
• Investor communities: Local REIAs, builder associations, and small‑balance debt conferences.
• Track record over ads: It’s crucial to prioritize lenders with a verifiable track record of closings in your specific asset class and market.  This ensures their suitability for your financing needs.

2) Credential & Capacity Checks: Ensuring Your Security and Confidence

• Licensing & compliance: Confirm any required state licensing/registration (lender or broker).  Investment/business‑purpose loans are treated differently than consumer/owner-occupied credit; laws vary by state—consult counsel.
• Proof of funds/capital stack: Ask how they fund (balance sheet, warehouse line, fractional note investors) and request POF for your deal size.
• Servicing & draws: Understanding who services the loan and the service level agreement (SLA ) for posting payments and scheduling draw inspections is crucial.  It sets clear expectations and aids in effective project management.

3) Term Sheet Essentials (Get It in Writing): Your Reassurance and Clarity

• Leverage: Max LTV/LTC/ARV and whether rehab is held back in draws.
• Economics: Rate, points, exit fee, extension options/fees, default interest, late fees, minimum interest (if any).
• Structure: Interest‑only vs. amortizing, interest reserve, recourse vs. non-recourse, cross-collateralization terms, partial release provisions (for subdivisions/condos).
• Valuation & diligence: Full appraisal vs. BPO, required scope of work, contractor credentials, contingency %, permits.
• Timeline: Underwriting milestones, appraisal order, clear‑to‑close target, rate/term lock duration.

4) Collateral & Risk Controls

• Title & lien position: First‑position deed of trust/mortgage with lender’s title policy; cure rights and assignment of rents.
• Insurance: Hazard/builder’s risk naming lender as mortgagee/loss payee; verify coverage amounts and effective dates through COI.
• Construction safeguards Include Independent inspections, lien waivers, potential retainage, and a transparent change-order process.
• Documentation: Promissory note, deed of trust/mortgage, personal and/or carve-out guarantees, construction loan agreement, draw schedule, and, if applicable, UCC filings.

5) Negotiation Levers (What’s Actually Flexible)

• Points vs. rate trade-offs: You can often tighten points with strong sponsorship or repeat volume.
• Extension certainty: Pre-negotiate extensions (fee + months) to reduce refinance or sale timing risk.
• Interest reserve sizing: Calibrate to your realistic timeline to avoid mid-project cash strain.
• Recourse burn-offs: Tie recourse to milestones (e.g., achieving DSCR or COO).
• Partial releases: If selling in phases, specify release prices and mechanics upfront.

6) Red Flags—Walk if You See These

• Extensive “application” or “due diligence” fees before underwriting has begun or before you receive a signed, detailed term sheet.
• Requests to wire funds to personal accounts or avoidance of title/escrow.
• Too‑good leverage (e.g., >80% of ARV) with vague appraisal/draw standards.
• “No appraisal, no documents” marketing on larger balances.
• Last-minute term changes unexplained by new information discovered in underwriting.
• Unwillingness to provide references or verifiable closing History.

7) Packaging Your Deal (So Lenders Say Yes Fast): The Art of Professionalism in Real Estate Financing

• Executive Summary: Purchase terms, timeline, exit, and sponsor bio with a proven track record.
• Numbers that pencil: Budget, ARV support (comps), schedule, and sensitivity analysis.
• Scope & team: GC agreement, permits plan, insurance binder, and draw schedule.
• Reporting rhythm: Commit to monthly progress photos and budget vs. actual to build trust (and better pricing next time).

Tips If You’re Becoming the Lender (Brief)

• Underwrite the asset and the operator, requiring a clear exit strategy, a realistic budget, and contingency plans in place.
• Control the cash.  Use draws against documented progress; consider retainage.
• Price-to-risk: Align rate, points, and recourse with leverage, complexity, and sponsor depth.
• Protect your lien: first position, title insurance, assignment of rents, and appropriate insurance endorsements.
• Service well.  Fast communication and predictable draws keep projects on schedule—and reduce defaults.

Important: Regulations differ by state and loan type.  For licensing, usury, disclosures, and business‑purpose certifications, consult knowledgeable counsel in your jurisdiction.

Bottom Line

Private money isn’t a replacement for bank debt—it’s a precision tool.  Use it when speed, flexibility, or asset conditions make bank financing impractical.  If you package your deal professionally and vet lenders rigorously, private capital can help you capture opportunities, create equity, and scale your portfolio—without getting trapped by red tape.  This opens a world of possibilities and opportunities for growth in your real estate ventures.
Here are the highlights from the Lender Vetting Checklist for quick reference:

✅ Top Sections & Key Points

1.  Sourcing Lenders

• Use trusted referrals, such as title officers, brokers, attorneys, and experienced investors.
• Network at REIAs and real estate events.
• Verify the lender’s track record in your asset class and market.

2   Credential & Capacity Checks

• Confirm state licensing (if required).
• Request proof of funds for your deal size.
• Understand who services the loan and draw timelines.

3.  Term Sheet Essentials

• Clarify max LTV/LTC/ARV and rehab holdbacks.
• Lock in rate, points, exit fees, and extension terms.
• Confirm appraisal/BPO requirements and contractor credentials.

4.  Collateral & Risk Controls

• Ensure first-position lien with title insurance.
• Require hazard/builder’s risk insurance naming the lender as loss payee.
• Use inspection-based draws, lien waivers, and retainage.

5.  Negotiation Levers

• Trade points vs. rate.
• Pre-negotiate extensions and recourse burn-offs.
• Secure partial release terms for phased projects.

6.  Red Flags (Common Warning Signs) Hefty

• Get upfront fees before the term sheet.
• Requests to wire funds to personal accounts.
• Unrealistic leverage promises (>80% ARV).
• Avoidance of title/escrow or no verifiable references.
• Last-minute unexplained term changes.

7.  Packaging Your Deal

• Provide an executive summary with a track record.
• Include budget, ARV comps, and timeline.
• Attach GC agreement, permits plan, and insurance binder.