What to Expect and What To Prepare For On Your Loan Application
Investing in the real estate industry requires you to be fast in your transactions to stay ahead of the competition. The quick availability of funds most often determines the success of the project. When relying on your traditional banks fall short in this aspect, the prospects of Hard Money Loans bridging the financing gap appeal as a reliable alternative and a valuable lifeline. Knowing and understanding your way through the Hard Money Loan Process will help you along the way with your application.
In this article, you will gain familiarity with the steps involved and what to expect along the process. From loan application to loan release, you will have insights into what happens along the way for a clear view of the Hard Money Lending process. Read on to know more.
The Hard Money Loan Process
Although not technically part of the process, the first thing you should do is to look for a Hard Money Lender. As a borrower, you should be able to find a lender who you can work with. Building a long-term business relationship with your lender should be one of the factors to take note of.
How to Look For and What To Look for in a Lender
You can ask local industry people such as brokers and real estate investors. You can also search the internet for local hard money lenders. You may also attend real estate conventions around the area. Here are some pointers to help you with your search.
- The lender knows the real estate market where you want to invest. A lender with real estate investments in the area is a plus.
- Lenders with sizable loan portfolios mean that they are trusted and invested in the community.
- The lender must have an established physical office. The officers and staff must have significant experience in the lending and real estate industries.
- The lender should have funded numerous projects and have a loan portfolio that rivals traditional lenders.
- They should have registration with appropriate government agencies. You can also check their accreditation and rating with the Better Business Bureau.
You can also read one of our blogs here for a comprehensive guide to choosing your hard money lender.
Your Next Steps after Choosing a Lender
Pre-Qualification, Application, and Documents
Once you have a lender, such as GL & L Holdings in Houston, fill up a pre-qualification form online. The online questionnaire will give the lender an overview of your financial capacity and the property you are interested in. If your real estate project is deemed feasible, you can proceed to the next step of the Hard Money Lending Process.
Next, fill up and sign a proper application form and submit the necessary documents to proceed. Prepare hard copies of your financial papers such as business documents, bank statements, proof of employment, payslips, or tax returns.
Property, Rehab Plans, and Appraisal
Hard money loans are asset-based loans. Your lender will give more significance to the property you offer as collateral. Prepare to present property-related documents such as an agreement with the seller, renovation or rehabilitation plans, and construction costs and budget plans.
Next in the Hard Money Lending process is the property appraisal and evaluation. The lender will also evaluate the plans, scopes of work, and costs involved in the rehabilitation. Lenders are particular about the bill and rehab plans because they want to know if your project is feasible. Lenders usually have accredited appraisal companies you can get in touch with.
Prepare an Exit Strategy
An exit strategy is your way out of the loan. It is how you plan to pay it on or before it matures. You have at least two options for the property after its rehab. You can flip the property or use it as a rental. For a flipper, your buyer pays off the loan through cash or financing. For rental investments, applying for a long-term loan is an option for a way out. An exit strategy will give your lender an idea that you have it all planned out, helping them give you a favorable decision.
Underwriting And Decision Making
Hard Money Lenders have different tolerances when deciding on a loan. In this part of the Hard Money Loan process, the lender evaluates the creditworthiness of your loan application. The underwriter does credit analysis and notes the risks. Experience in real estate investments, rehab plans, and exit strategy can help steer your application to a favorable decision.
Loan Closing And Fund Release
In closing the loan, you will sign loan documents prepared by the lender. You should also review the loan documents before signing them. You can talk with your lender for clarification. You’ll be talking with an escrow agent and a title company. The title company shall ensure compliance with all requirements before releasing the funds. Insurance coverages on the property and the loan are part of the requirements.
What Should You Expect And Prepare For
Hard Money Lenders need to balance the risks they take in asset-based loans. Thus, you should know the following terms and conditions.
Higher interest rates and fees
Typical Hard Money lenders offer higher interest rates because they are risk-aware lenders. They take more lending risks than traditional lenders do. Hard Money Lenders can accommodate distressed properties for rehab that traditional lenders automatically decline.
Higher Equity Requirement
Hard Money Lenders require 30% equity. When you invest more in your real estate project, hard money lenders take this as a commitment on your part to finish what you have started. The more you invest in your project, the more committed you will be.
Shorter loan terms and repayment schedules
Funding a relatively riskier venture prompts a need to recover the invested funds as quickly as possible. In this same context, you should expect a short-term loan if you have less-than-ideal financial or credit history.
Background and Credit Verifications
Hard Money Lenders specialize in asset-based loans, and they are known to render asset-biased decisions. Despite this, hard money lenders still conduct credit and income verifications to determine how a borrower handles finances. Of course, anything that may signify unfavorable financial history will affect the decision on your loan application. However, Hard Money Lenders are often more tolerant of borrowers with poor credit and substandard financial situations.
Conclusion
The Hard Money Loan process varies from one lender to another. Understanding the process can help you mitigate and address unfavorable factors early and help you secure approval. Securing a loan from traditional banks if you have a poor credit history or a distressed property is next to impossible. Why not go where the lenders listen to you, where you are understood, and given a chance to make it all possible? GL&L Holdings, a Hard Money Lender in Houston, is willing to listen to your story. Call us now at 832-770-9415, email us, or fill up our online pre-qualification form. Let us invest in your future together.
