Hard Money Loans: Required Documents
By definition a hard money loan is a short-term bridge loan that is essentially a last resort loan. This means that most traditional banks will not finance a piece of real property, albeit it a residence, raw land, commercial building or apartment complex. Hard money loans require the property serve as collateral to the loan, should the loan go unpaid. These loans are based on the property itself, not on the borrower’s credit. As the property is the only collateral for these types of loans, should the borrower default, hard money loans have an average lower loan-to-value (LTV) ratio when compared to traditional real property loans.
A hard money lender requires less documentation than traditional banks; however, there are still key pieces of documentation that are required to complete hard money loans.
- Purchase and Sale Agreement – This is a contract to purchase a piece of real property. If the property is being refinanced, a payoff statement from the current lender is required.
- Preliminary Title Report – This is provided by a local title company and shows any liens, encumbrances or issues related to the property. Most private money lenders will require a clear title before accepting bridge loans.
- Identification – if an individual is borrowing the funds, escrow and the lender will require two forms of identification. If, however, the borrower is a business, an operating agreement, corporate documents and a Certificate of Good Standing with the Secretary of State may be required.
- Proof of Funds – If the loan is a commitment to purchase, hard money lenders will likely require proof of funds for the down payment. A bank statement or other related financial statement should suffice.
- Proof of Insurance – This is required for any property that is being refinanced or purchased.
- Optional Requirements – Some private lenders can require a credit report, loan application and a copy of current leases, if the property is an income-producing rental property.
In order to help lenders close quickly on a real estate loan, borrowers should consider advance pre-approval. During this process, lenders will explain what documents will be required, in addition to discussing potential terms, rates and payback requirements.
Having a pre-approval also helps a real estate agent when making an offer on a property, as this means that a buyer is pre-approved for a specific amount. Not only does this make an offer stronger, but also it lets the Seller know the Buyer is serious about purchasing the property.