Questions about the Hard Money Process

[Hunter Perkinson]

Hello BP, 

I was hoping someone could give me clarification on how using hard money works. I've never flipped a property before but thats what I'm looking to do. I want to get my financing in order first and hard money is looking like the best option for me so far. 

Do I need to line up a hard money lender before I have a deal in place or do I need to present a deal to a hard money lender initially for consideration? 

In either situation, what kind of verbage and documentation should I be using with the seller? I will be targeting distressed single family homeowners via direct mail. 

Can someone please walk me through what this process looks like? 

Thanks in advance. BP has been a great resource for me and I look forward to the day that I can give back as well!

[Jon Holdman]

A hard money loan is not cash.  If you're using hard money, do not claim you're paying cash.  That will leave you with no financing contingency and you'll lose your earnest money if the lender won't fund the deal.  Hard money is absolutely NOT as good as cash.

First, realize that details can vary quite a bit among lenders.  I'll describe what I've been through, as both a borrower and lender.

You do want to find a lender before you make offers. You'll need to get pre-approved. Its not all that different than a conventional loan. You'll include the pre-approval letter with the offer. You may need to include an explanation about the lender. Once you have an accepted offer, the lender will do an appraisal. Provided that's OK, the closing will be largely like a conventional loan. Once difference is that most or all of the rehab budget will be held by the HML. They will give you "draws" as the work is done an inspected.