Many hard money mortgages have similar terms. Since hard money mortgages are based on the borrower’s equity in the property instead of traditional lending qualifications, the risk level is generally considered the same for most of these loans.

This doesn’t mean you should go with the first broker you find. On the contrary, you should “shop around” for a hard money mortgage you feel comfortable with. Here are some of the most important factors to consider:

Broker or Wholesaler – The professional helping you with your hard money loan will have a lot of influence over the process. Choose someone competent and your loan application will go much more smoothly. Hard money mortgage brokers can help you shop many investors and lenders to find a loan that works for you. Some hard money wholesalers, on the other hand, can fund your loan directly. Hard money wholesalers are a more direct way to get your loan, but you will have to start the process all over again if a wholesaler doesn’t work out.

Interest Rate – Hard money mortgage rates tend to be very high. Try to find a loan that keeps your interest as low as possible while not charging too many points. Remember that hard money mortgages are generally refinanced in a few years – don’t intend to pay these high rates forever.

Points – A “point” is a percentage of your loan amount paid to the hard money mortgage broker, lender, or wholesaler at closing. For example: a $100,000 loan with one point requires the borrower to pay a $1,000 fee (1% of the loan). The same loan with ten points requires a $10,000 fee (10% of the loan). Points do not reduce the amount owed on the loan – they are simply upfront fees that go to the investor and other professionals involved in the transaction. The fewer points required, the better.

Loan-to-value – Most hard money lenders currently follow a 65% loan-to-value rule, requiring borrowers to bring a 35% down payment to the table. In some cases there can be flexibility in these numbers. But, hard money lenders rarely create mortgages for more than 70% loan-to-value.

Loan Length – Most hard money mortgages are for a short period of time, generally 15 years or less. Although you probably do not want to keep a high interest rate for that long, the longer term gives you more flexibility in case you find yourself unable to pay the money back.

Prepayment Penalties – A prepayment penalty can be a huge drawback if you’re able to refinance or sell the property in the next few years. Prepayment penalties are fees charged when a borrower pays off their hard money mortgage within a certain period of time. Try to find a mortgage that has relatively low prepayment penalties or does not charge these fees at all.

Lockout period – A lockout period is a borrower’s worst enemy. Lockouts ensure that lenders collect high interest rates for a set period of time, no matter what. For example: A hard money loan with a three year lockout period requires a borrower to pay interest for three years, even if he sells or refinances. If a borrower were to sell the property in two years, the lender would collect a prepayment penalty and a year’s worth of interest on a loan that no longer exists. Generally lockout periods only show up in hard money mortgages for commercial properties.

Once you choose a lender, read your paperwork carefully before signing. You don’t want to be stuck with an unpalatable clause or a payment you can’t afford.