First time making offers with hard money. What's the process?

Question

Jeff S. · Answer

Hard/private money lenders must comply with the law but are not under the same constraints as conventional lenders, who must also work within the guidelines of Fannie Mae, Freddy Mac, or the other GSE’s they do business with, @Aaron Bitner.  As such, private lenders have a bit more flexibility and you’ll find their terms and processes can vary greatly between them.

I agree with @Ryan Blake, above.  More specifically, I suggest you attend some local real estate clubs with the intent on meeting local lenders.  Here’s a list of REI clubs in the Knoxville area as a start.  Come armed with a list of questions.  If you don’t know what to ask, you can find a list of informed questions mid-way down this discussion.

You’ll learn that private lenders can be as different a fingerprints in terms of how they work, who they will loan to, and on what type of deals.  A knowledgeable lender will also tell you how successful offers are written in your area.

While private money is still a loan, offers for flips are often written as cash, with no contingencies, and an extremely quick close. Your agent will know what’s going on and don’t be naïve to think everything hasn’t been discussed and arranged with the seller’s agent.  Your bigger risk is that the lender can’t or won’t perform.  That’s why it’s important to know who you are dealing with before you make any offers.

Good luck, Aaron.

Andrew Postell · Answer

@Aaron Bitner as mentioned above you should definitely speak to the lender first.  If the loan you are prequalified for affects your profit somehow then that might mean you need to offer different on potential properties.  Likewise, your lender will tell you what their closing time is.  With a Hard Money Lender they should be able to close quickly.  Hope this helps.

Ryan Blake · Answer

@Aaron Bitner

I would contact an HML first. This will give you the opportunity to get pre-approved and a proof of funds letter. The contract should be written in cash. That is how we handle them in Texas. Then you make note that it is using same as cash financing and submit the POF with the offer. I would give 5 - 10 days after your option/inspection period to close. Each specific HML will have their own timing needs.

NOTE: NEVER pay an HML before you are sitting at the closing table. This is a sign of a possible scam. There is no need for a legit HML to take money prior to closing a deal.

Lanny Necaise · Answer

@Aaron Bitner I would suggest you reach out to some hard money lenders and make sure you meet their lending criteria (credit score, available funds, LTV, locations, etc).  Some will do a pre-approval so you are in their system but I prefer to wait so they are not pulling credit reports when its not necessary.  It looks like we are in the same market and I have used a hard money lender that was able to close on a 4 day notice.

Dan Beaulieu · Answer

@Aaron Bitner

@Lanny Necaise has a very valid point. There are some HML that pull your credit before even giving you that first call if you filled out an online app!

You're wondering if you will be good to go and not have to back out of a contract if you can't get funded. A good HML can take one quick look at your deal or cash reserves and give you peace of mind to go ahead and make offers and know you will be good to go.

Pre-Approval letters are a great thing to have when making offers though especially if there is a realtor on the other side. I have many clients that make offers "Cash" but also many that check the box "other" - Hard Money Loan...and this is the best way to do it in Knoxville.

Caleb Jordan · Answer

If you are qualified for a loan from a HML and have POF make sure to run a property buy them before you make an offer so they can do a quick analysis. Even though YOU might meet borrower criteria, the PROPERTY might not meet the deal criteria.

As far as credit pull, speak to a lender first and get a feel for what the requirements and programs are then fill out an app.

If you want to avoid unnecessary credit pulls You might also be able to get any docs turned in so that the only thing they need to do is pull credit when you decide to submit a deal. Also your  credit pull may be good for a couple months depending on underwriting requirements, so that can help alleviate excessive pulls too.

Stephanie Medellin · Answer

A hard money loan is still a loan.  You don't have the cash in your account.  You still have to get approval before they will fund, so there's always the chance it could fall through.  It depends on how competitive your market is whether you want to include a financing contingency in your offer, but I would always recommend including the contingency to protect your deposit.

Aaron Bitner · Answer

Thank you everyone for your help!

Joseph Holliway · Answer

@Ryan Blake

A HML is the same as a cash offer with the proof of funds letter? I haven’t found an answer that expands on that.

First time making offers with hard money. What's the process?

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