Purchase contracts and hard money/private loans - chicken or the egg

[Gary Tsai]

Recently, I've been searching for ways to fund a deal but I keep getting conflicting information about the purchase contract from various sources.

A little while back I posted a question here about the process of making an offer when private/hard money lenders are involved. My impression from the responses (which were great and very helpful, by the way) is that I should get pre-approved for a loan. Great.

The real estate agent that showed me the property that I want to purchase tells me that she needs earnest money and proof of funds letter from my lender before submitting the offer. Fair enough.

What threw me was when I spoke to one private lender, one of the first questions he asked me was, "Do you have a purchase contract in place?" I told him, "No, because my real estate agent wants a proof of funds letter." His response to that lands somewhere between annoyance and exasperation, but he basically told me to call him back when I get a purchase contract in place.

A conversation I had with the next private lender I contacted basically went the same way.

So, it looks to me like a case of chicken or the egg: My real estate agent won't put in the offer without a proof of funds letter, and the private lenders I've spoken to won't approve me and/or provide a proof of funds letter without a purchase contract.

What am I missing here? Am I getting the runaround?

[Account Closed]

As a private lender to rehabbers, I used to provide a pre-approval letter, and even a couple of pof's, but after 10-20 of those and never hearing from borrower again I learned it was a waste of my time. I understand your frustration, but lenders also have frustration.