How do I vet a private lender? What are the red flags?

Question

Turnrow Capital · Accepted Answer

Five red flags: large upfront fees before a written term sheet, no written terms at all, guaranteed approval with no appraisal or diligence, pressure to sign same-day, and default terms that read like the lender profits when you fail. A legitimate lender puts numbers in writing early and answers exit questions in specifics.

Advance-fee fraud is the classic scam: thousands in "processing" or "due diligence" fees collected, then the loan never closes, or terms mutate at the closing table. Legitimate lenders may charge for third-party costs like an appraisal — paid to the appraiser, at commitment stage — but a lender whose revenue arrives before funding is a lender who may not need to fund. Get the term sheet before any money moves.

Read the back end harder than the front. Default interest rates, extension fees, forced-placed terms, personal guarantees dressed as boilerplate, and confession-of-judgment clauses tell you how the lender behaves when things wobble. Loan-to-own operators write those clauses on purpose. Ask directly: "What happens if my refinance takes 60 extra days?" A specific, structured answer is a good sign; a shrug is not.

Verify the entity: state lending licenses where required, actual funded deals you can reference, a real appraisal process, and closing through a title company or attorney — never wired to the lender directly. And have your own attorney read the documents; the few hundred dollars is the cheapest insurance in this industry.