What documents do you need to get a hard money loan?
Purchasing a property requires to have significant funding. So when you have found a property to buy, money becomes quite an issue to solve. Here hard money lenders come to help. Private lenders are the best choice to get financing quickly. Despite the banks, they close a deal within a couple of days.
But what is the process of getting a hard money loan? What kind of documents do you have to collect? Will it take as much time as getting a bank loan?
First of all, let’s figure out what a hard money loan is and its specifics.
A hard money loan is a loan secured by real estate. In most cases, hard money lenders are private individuals or firms, and each of them has its own specifics of work.
with LBC Capital Income Fund
The main benefits of hard money lenders are:
- speed, they issue a loan in a matter of days (usually up to 7-10)
- flexibility, they provide much more flexible lending parameters than the bank’s
- loan amount. For example, LBC Capital gives a loan from $50,000 up to $25 mil.
Hard money loans are bridge loans, and the terms vary from 6 months to 2 years. The only minus is rates; they are much higher than banks offer. Usually, interest rates start from %7.99.
Private money or hard money loan has a much lighter documentation process than a traditional bank loan. Depending on a hard money lender, here is a list of the most common documents required to close a hard money loan (some lenders may require more documents to close the loan than others):
1. Purchase contract
If it’s a purchase loan, you will need to provide a purchase contract. If it’s a refinance loan, you’ll need a payoff statement from an existing lender.
2. Preliminary Title Report
It’s necessary to show a clear title to the property. The designated title company for the loan will provide this.
3. Two Forms of Identification
If the borrower is an individual, he will have to provide two forms of identification. If the borrower is a business entity, he will need to have corporate documents or an operating agreement. Additionally, a Certificate of Good Standing with the Secretary of the State for the entity can also be required if borrowing as a business entity.
4. Proof of funds statement
If it’s a purchase loan, you will have to show a proof of funds statement. The private money lender wants to see that the borrower has enough funds for the down payment. A recent bank statement or other account statement is usually enough.
5. Proof of Insurance
Proof of insurance is necessary for the property that is being purchased or refinanced.
6. Optional Items
Optional items can include a loan application, credit report, copy of the lease, and/or rent roll if it’s a rental property.
Once again, the documents discussed in this article are the ones that are the most commonly used by many hard money lenders. Each specific lender will likely have additional disclosures and papers for the borrower to review and sign before completing the loan transaction. Additional layers of documentation will be required from a borrower if it’s a consumer loan and much more if it’s a consumer (consumer owner-occupied) O/O loan.
Why should you use a hard money loan?
1. Hard money loans are the best choice if you recently faced credit issues
Unlike the traditional lending institutions, private lenders do not pay major attention to the credit score. Moreover, hard money lenders do not require a waiting period after foreclosure or bankruptcy. For example, LBC Capital offers same-day underwriting.
2. You need money in a very short time
Considering the fact that banks issue a loan within weeks or even months, hard money lenders definitely win here. Usually, it takes up to 7 days to close a loan. However, you should expect to pay a greater interest rate, starting from 7.99%
3. You are buying a property that requires significant repairs
If you are a flipper, you know that distressed properties in good locations can bring a great profit. However, flippers often compete with all-cash buyers for these types of properties, and they often lose because they cannot get a loan in time. That’s why hard money lenders become the best choice.
4. You are competing with cash offers
Buying a property that was sold at foreclosure or property tax auctions means you have to have cash within a certain number of days. Once again, hard money lenders will be the fastest way to get a loan compared with all other traditional institutions.
What do I need to qualify for a hard money loan?
The main requirement to apply for a hard money loan is having a down payment or equity in the property that will serve as collateral for the loan. The minimum sum ranges from 25% to 30% for residential property and from 30% to 40% for commercial property.
Secondly, the borrower who wants to qualify for a hard money loan has to have cash reserves to make holding costs and monthly payments.
The last but not least requirement is having experience in the real estate market. If you are a newbie, a lending company may require some details on the project. However, we are ready to help borrowers in most cases.
How to choose a reliable hard money lender?
LBC Capital is a unique California private money lender for real estate investors looking for financing in a matter of days. We offer flexible underwriting, attractive business purpose hard money loans, no hidden fees, and quick funding. In addition, we develop long-term relationships with our clients through our professional service and exclusive loan terms.
Should you still have any questions, please, do not hesitate to call our loan advisor for free assistance!
Check our recent article on “what are income funds and how to get high-yield return there” here.
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