Hard Money Loans: 6 Simple Steps to Get Funded

Hard Money Loans: 6 Simple Steps to Get Funded

Requesting funding for hard money loans for the first time can seem a bit daunting. Potential borrowers often have many questions about how to get a hard money loan:

Where do I find a reliable hard money lender?

What does the hard money loan process involve?

How much paperwork and documentation is required?

Rest assured that the process for obtaining funding for a hard money loan is very straightforward and painless, especially when compared to borrowing money from a conventional lender such as a bank or credit union.

This article will go over the process of how to get a hard money loan including where to find hard money lenders, questions to ask when interviewing lenders, the hard money loan application process and what disclosures and documents will be required.

Follow these 6 simple steps for a fast and easy hard money loan transaction.

1. Find hard money lenders

The first task is to find a few hard money lenders who are able to lend in the borrower’s area. This can be accomplished in many ways including networking at local real estate investor meetings, getting a referral from a trusted real estate professional or simply searching the internet for hard money lenders who lend in the area where the property is located.

More information on how to find hard money lenders.

2. Interview hard money lenders

Once the borrower has identified a few hard money lenders who are able to lend in their area, it’s time to look further into the lenders as well as the programs and terms they offer. The most efficient way to do this is to pick up the phone and call the lender.

The first part of call should be spent going over the borrower’s loan request and any necessary details the lender needs to determine if they can fund the request based on their criteria and provide a quote. After a couple minutes the hard money lender should be able to give contingent approval (or denial) as well as a rough quote.

A quote from a hard money lender will generally consist of the interest rate they will charge and the points. Some lenders will also add on additional fees such as underwriting, document, or processing fees. Be sure to ask the lender upfront about any added fees in order to make a fair comparison with quotes you receive from other lenders.

If the lender has expressed an interest in funding the hard money loan and has given a quote, the borrower needs to ask some important questions such as:

  • How much experience do you have in hard money lending?
  • Are you a direct lender or a broker?
  • Do you have references from previous borrowers?
  • How long do you take to fund?
  • Is there a prepayment penalty?

You might also want to ask what license the lender holds and who the lender’s regulator is so you can check to see if the lender is in good standing.

Complete list here: Questions to ask hard money lenders when applying for a loan

After multiple conversations, questions and quotes with different hard money lenders the borrower should have an idea of which lender they’d like to proceed with. Many borrowers focus solely on the terms of the loan (interest rate and points) but the borrower should also consider the trustworthiness of the lender and select a lender with whom they feel comfortable.

3. Select a hard money lender and apply for the hard money loan

Any borrower who has applied for a conventional bank loan understands the pain involved with applying for bank loans. Seemingly endless paperwork and disclosures. The hard money loan application is nothing like this.

When applying with a hard money lender, most will require the borrower to fill out a loan application. They are generally straightforward documents that are often essentially mini personal financial statements. It may require information about the subject property, borrower, borrower’s employment, income and expenses, assets and liabilities, real estate owned and other types of declarations. It shouldn’t take longer than 20-30 minutes to complete if the borrower has all the needed information readily available.

Depending on the hard money lender and the type of loan requested, the documents requested by the lender will vary. Commonly requested documents may include:

  • Tax returns
  • Proof of funds for down payment
  • Bank statements
  • List of prior projects (for fix and flip loans)

In some cases less documentation will be required and in other cases more documentation will be required. There are various factors that will impact what documents will be needed for the lender to give a final approval and complete the loan.

4. Sign initial loan disclosures provided by the lender

Once the borrower has received approval, the hard money lender will begin preparing the loan disclosures. The first disclosure form may be a E-sign Consent which gives the lender permission to electronically send documents to the borrower. Once this has been signed and returned the lender will be able to send various disclosures which may include the following:

  • Mortgage Loan Disclosure Statement
  • Privacy Policy
  • Equal Credit Opportunity Act Notice
  • Fair Lending Notice
  • Hazard Insurance Disclosure

The disclosure documents can vary widely depending on the collateral for the loan, the purpose of the loan and whether or not the borrower occupies the property.

5. Sign loan documents provided by the lender

After the necessary disclosures have been received, signed and returned to the lender, the lender can prepare the loan documents. The loan documents generally include the following:

  • Deed of Trust
  • Note
  • Escrow Instructions
  • Payment Guaranty (If applicable)
  • Arbitration Agreement (if applicable)
  • Other documents based on the specific aspects of the loan

These documents are often signed at the lender’s office or at the escrow company.  The deed of trust always needs to be notarized since it is a recorded document.

6. Send down payment to escrow when escrow is ready to close

Once all of the documents have been signed and received by the lender or escrow company, the borrower will need to wire their down payment to escrow (unless the loan is a refinance or cash out refinance). When escrow has confirmed they have everything in order including evidence of insurance, the hard money lender will be able to wire their funds to escrow and fund the loan.

Depending on the county and the type of loan (purchase or refinance), the loan may be able to record the day of funding or it may be the next day.

Conclusion

This article has provided a high-level overview on how to get a hard money loan. From start to finish the hard money loan process is quick, upfront and transparent. The speed of approval and funding is the main reason why many real estate investors utilize hard money loans for their real estate financing needs. For more information on hard money loans visit the North Coast Financial Hard Money Lender Blog or contact North Coast Financial now.

Author: Don Hensel

Recent Hard Money Loans Funded by North Coast Financial