How to Talk to Your Clients About Hard Money Without Scaring Them

Understanding how to talk to your clients about hard money and the managing their expectations is so important. It’s all about under promising and over delivering.

The hardest transactions I have ever come across are the ones where the expectations of the clients were not in touch with the actual timeline of what occurs with hard money lending.

I’ve seen relationships get lost over miscommunication and mismanagement of timelines. Whether it be through an outside broker and their client or from a client working with us directly or even broker to broker relationships.

There's no reason for this to happen. It all boils down to communication.

Here are the topics I’ve seen have the most miscommunication and solutions on how to succeed.

VALUE OF THE PROPERTY

One of the most heartbreaking conversations we have is based around the value of the property. This is especially heartbreaking when working with an equity-based lender that relies on the value to be there in order for the deal to make sense.

We all want the deal to happen. But managing the expectations of the client if a conservative value comes in from one of our appraisers, will either make this transaction run smoothly, or create issues that will make it harder to manage the deal.

_________________Borrower’s Estimated Appraised Value

_________________The Realistic Range of Value After Running Comps

_________________Outside Broker’s Estimated Appraisal Value

_________________Marquee Funding Group’s Appraised Value

Why we go with the more conservative value

Protection from predatory lending goes both ways. We never want to write a loan for a borrower who can’t afford it and we never want to lend on a property that is valued more than it is actually worth.

If the economy were to take a downturn the borrower and investor would be stuck.

The borrower would find themselves stuck in a mortgage that has maximized their loan to value ratio, which would make it near impossible to get out of.

And the investor may be forced to buy back a property they never intended on owning.

The whole point of hard money lending is that it’s a short term fix for borrowers to get the financing they need, and a quick way for investors to gain interest on their hard earned capital.

We don’t write loans to take people’s homes or for lenders to lose their money, so it’s important to side on the conservative value vs the inflated one we tend to see.

PAPERWORK

Having paperwork in order is one of the things that makes underwriting so much easier. The worst is having to go back to your client at the 11th hour and ask for something that could’ve been asked for weeks ago. These are the things that tend to slip through the cracks, so if you get them ahead of time, you are already a step ahead of the game:

• Evidence of Fire Insurance
  • Sometimes earthquake insurance is required, and may be asked after the loan is committed
• If borrower is LLC
  • Operating Agreement
  • Articles of Organization
  • Statement of Information
• If borrower is Corporation
  • ByLaws
  • Corporate Resolutions
  • Operating Agreement
• If loan is:
  • Construction
    • Plans and Permits
    • Budget
    • Use of funds LOI
    • Course of Construction Insurance
  • Business
    • Operating expenses
    • Use of funds LOI
    • Profit and Loss Statement
  • Consumer
    • Proof of Income
    • Full executed loan application
    • If paying off credit card debt (most recent monthly statements to show balance, payee address and who to make the check payable to)

TIMELINE

Although hard money is known to move faster than institutional lending, things do come up where the loan may take longer to fund than anticipated. That’s why managing the expectations of the clients is really important. Here are some effective tools I use that have worked well with managing the timeline.

How the general timeline works

• Loan is submitted by outside broker
• Initial Disclosures are signed
• Marquee Funding Group analyzes the deal to see if it makes sense
• At times a lender will be in mind before approval
• Once loan is approved, a package is submitted to underwriting to begin pitching investors
• Initial Docs are signed
• Any demands are ordered and the preliminary title is cleared of any liens or encumbrances
• Full Docs are signed
• Investment packages to the investors go out
• Await funds
• Record loan

When a lender wants to visit the property

Many times, investors will want to do a site visit for a visual inspection of the property. Being available to their schedule is crucial to getting this step cleared.

If this were needed, I will let you know as soon as possible to make sure this is done in a timely manner and if there are issues that need to be addressed, we can go ahead and take care of it.

What to Expect for Consumer Transactions

1. Intake/ Consent Forms- To be filled out when we get the loan submission
2. Initials with original loan application- Within 3 days of loan application
3. CD- Sent out once a lender is committed
4. Full Docs- 3 days after the CD has been received
5. Funding- The earliest to fund is 3 days after the loan docs are signed because of the 3 day right of rescission. (purchases exempt)
6. Recording- Once all the money is in, we can set up to record and escrow closes

NEXT STEPS

Hard money is a great avenue if you take the time to understand the timelines and expectations associated with it. Feel free to leave any questions in the comment section or book a phone call to learn more about how hard money can help your clients.