23 Questions to Ask Before Getting a Private Money Loan in 2026
By HanoverMC On August 12 2026
23 vetted questions to ask before a private money loan — covering fees, LTV, draws, and licensing.
Quick answer: what to ask a private money lender
Before you sign, get written answers on five things: total cost (rate, points, fees, prepayment and extension terms), loan structure (how LTV is calculated), who is behind the loan (broker or lender, who funds and services it), how rehab draws work, and what happens if your exit runs late. Ask early, before you're under contract on a property that only works if one specific loan closes.
Have a deal in mind? Request a quote or call (714) 838-1474 ext. 102.
Private money loan terms to know
| Term | Meaning |
|---|---|
| Private money loan | A short-term loan funded by private investors rather than a bank, secured by real estate. Often called a hard money loan. |
| Business-purpose loan | A loan used for business or investment, not personal, family or household needs. |
| LTV / CLTV | Loan amount divided by property value. CLTV counts every loan on the property. |
| LTC / ARV | Loan-to-cost (purchase plus rehab) and after-repair value. |
| Dutch interest | Interest charged on the full loan, including rehab funds not yet released. |
| Balloon payment | The remaining principal due in one lump sum at maturity. |
More answers on our private money loan FAQs page.
A. Private money loan costs and fees
1. What is the interest rate, and how are payments structured?
Ask for the rate, whether it's fixed, whether payments are interest-only, and whether a balloon payment is due at maturity.
Know the maturity date and balloon amount from day one.
2. What are all the points and fees, including broker compensation?
Ask for an itemized written list: points, broker fee, any lender fee, underwriting, document, processing, and third-party costs such as appraisal, title and escrow.
Compare offers on total cost, not rate alone.
3. Is there a prepayment penalty or minimum-interest requirement?
Ask whether you owe a fee or a minimum number of months of interest if you pay off early.
This matters most if you plan a quick sale or refinance after rehab.
4. Are the quoted terms final, or can they change before closing?
Ask which terms are locked, what could change them (appraisal, title, rehab scope), and when you'll see final numbers.
Get the final terms in writing before you remove your financing contingency.
5. Is interest charged on the full loan amount or only on funds disbursed?
Ask whether you pay interest on rehab money still held back (Dutch interest) or only on money released to you.
On a large holdback, this can change your carrying cost substantially.
6. What are the default interest rate and late charges?
Ask what rate applies if the loan defaults or matures unpaid, and what the late fee and grace period are.
Read these terms in the note and deed of trust before closing.
7. Can the loan be extended, and what does an extension cost?
Ask whether extensions are available, what they cost, how much notice is needed, and who approves them.
An extension option written into the loan documents is worth more than a verbal promise.
B. Loan structure: LTV, LTC and ARV
8. How is LTV calculated for my property type?
Ask for the maximum LTV or CLTV for your property type and lien position, and confirm it for your deal.
Hanover Mortgage Company's current general guidelines:
| Scenario | General maximum |
|---|---|
| 1st trust deed, 1–4 unit residential | Up to 70% LTV |
| 1st trust deed, commercial | Up to 65% LTV |
| 2nd or 3rd trust deed | Up to 65% CLTV |
| Land | Case by case |
Guidelines as of September 2026. Not a commitment to lend; subject to change and to review and approval of each loan.
9. Is the loan based on purchase price, appraised value, or ARV?
Ask which value sets the loan amount and who orders the appraisal.
The same percentage applied to each produces very different loan amounts.
10. How much of the rehab budget will be financed?
Ask the maximum loan-to-cost and whether an ARV cap also applies.
Your loan may be limited by whichever test is lowest. See how private money bridge loans handle purchase and rehab financing.
11. Does my loan qualify as business-purpose?
It depends on how the loan money is used, not on who lives in the property.
- Can qualify: buying, refinancing, or renovating investment property, or funding an operating business. This can include a loan secured by a home you live in, if the proceeds go to those uses.
- Does not qualify: paying personal debts, covering living expenses, or remodeling your own home for your own use.
Expect to sign a statement of how the proceeds will be used. Hanover Mortgage Company arranges business-purpose loans only.
12. Which lien positions can you arrange: 1st, 2nd, or 3rd?
Ask whether the lender or broker works only in first position or can place a second or third trust deed.
A junior loan can let you pull equity without refinancing a low-rate first mortgage.
Not sure how your deal would be evaluated? Send your scenario for a case-by-case read on LTV, structure and timeline. Submit your scenario
C. Broker, lender, investors and servicer
13. Are you the lender or a broker, and who makes the final credit decision?
Ask whether the company funds the loan itself or arranges it with outside investors.
Hanover Mortgage Company is a licensed California real estate broker. It arranges loans funded by private trust-deed investors.
14. Will one investor or several investors fund my loan?
Ask whether a single investor or a group will hold your loan.
Ask how decisions such as extensions are made when more than one investor is involved.
15. Who services the loan after closing?
Ask who collects payments, handles payoff demands, and processes extension requests.
Get the servicer's name and contact details before closing.
16. What is a realistic closing timeline for a deal like mine?
Ask for the typical time from complete application to funding, and what usually causes delays.
Appraisals, title issues, entity documents and insurance are common holdups.
17. Have you closed loans like this before?
Ask for examples of similar property types and deal structures, and how delays are communicated.
Example: SFR + 3 vacant lots, Hayward, CA. Purchase, 1st trust deed, 46% LTV, business purpose.
Past transactions do not guarantee similar terms. See more closed transactions.
D. Rehab draws and fund control
18. How does the draw process work, and how fast are draws released?
Ask what documentation and inspection a draw needs, and how many business days until funds arrive.
Your contractor payment schedule depends on this answer.
19. Who holds the rehab funds, and what fees apply to each draw?
Ask whether the lender, the servicer, or a third-party fund control company holds the funds, and what it charges.
Setup, budget review, and per-draw inspection fees are common. Budget for them.
20. What happens if my rehab budget changes mid-project?
Ask whether a contingency reserve is required and how change orders are approved.
Overruns usually come out of your pocket unless the loan has room for them.
E. Exit strategy, payoff and extensions
21. What exit strategy do you need to see, and does the loan term fit it?
Expect to explain how you'll repay the loan (sale, refinance, or other source) and confirm the term leaves enough time.
If you plan a BRRRR exit (buy, rehab, rent, refinance, repeat), the new lender sets any seasoning period before it will lend on the higher value. Make sure your loan term covers it. Private money term loans are one refinance option.
22. How does payoff work?
Ask how to order a payoff demand, how long it takes, and what fees apply.
Slow payoff turnaround can delay your sale or refinance closing.
23. What happens if the property doesn't sell or refinance before maturity?
Ask what options exist if your exit runs late and what each costs.
Options may include an extension or a refinance. None is guaranteed, so plan for a delay before you sign.
Want these answers for your deal?
Hanover Mortgage Company/DBA HanoverMC arranges business-purpose private money loans on California property, including 1st, 2nd and 3rd trust deeds.
Request a quote · Call (714) 838-1474 ext. 102 · Mon–Fri, 8 a.m.–5 p.m. PT