Chances are you’ve already spoken to our underwriters so you know that our loans are not based on your credit score (we do take a look at your credit history though). Typically, they don’t require income documentation. The funds you will be putting in the transaction don’t have to be seasoned and may come from different sources. Our underwriters use a common sense approach to evaluate the property’s profit potential and the borrower’s ability to successfully manage the project. Our process is significantly more streamlined than the process used by banks and credit unions. However, there is no such thing as an over-prepared borrower or an over-organized rehabber. For those who like to plan ahead, here is a detailed description of our pre-approval and underwriting process.
Filling out a borrower applicationis the first step in getting pre-approved for a loan. You can fill it out even if you don’t have a property in mind. At that stage, we can pre-approve you based solely on your strength as a borrower. This pre-approval will allow us to issue a hard money Proof of Funds letter. Our Proof of Funds letters are equivalent to a cash offer and allow you to effectively compete with cash buyers.
Ratified Sales Contract
We might have preliminarily pre-approved you based on your strength as a borrower, but strong collateral is a must. Once you have a ratified contract, go ahead and send us a copy. We will run a detailed analysis on the property you are buying and will start working on your Letter of Intent.
Scope of Work
You need to provide a detailed description of work that you intend to undertake in the property. The description needs to include the costs of both labor and material. You can get a scope of work from your contractor or if you have experience you can do it yourself. Check out our Tools and Resources page for a sample scope of work form to get you started. A well-prepared scope of work is essential for the success of your project and needs to be submitted to us before we can issue you a Letter of Intent.
Hard Money Letter Of Intent (LOI)
Once we have your Borrower Application, the Ratified Sales Contract and the Scope of Work, it’s time to get cranking on the Letter of Intent. A letter of intent is a document that specifies the terms and conditions of our loan. Think about it as our commitment to fund the loan provided that all underwriting conditions are satisfied. This is an important step and – together with an appraisal check- it transfers your file from the pre-approval stage to underwriting. We ask our borrowers to sign the Letter of Intent in front of a notary public and send us the notarized version in the mail.
If the property is distressed and in need of repairs, the majority of banks turn it down. Such homes might be missing appliances, have stained carpets or have mold in the basement. However, once renovated they have the potential to generate a substantial profit. This is why we base our loans on the projected after repair value (ARV). At this point in process, our underwriters have already run a thorough analysis of your property’s ARV. An independent appraiser will inspect the property to confirm our value and to ensure that the structure is intact. The cost of the appraisal is the only expense you incur during the underwriting process. The check needs to be sent to us along with your notarized Letter of Intent.
During this stage of underwriting we are likely to ask for the following documents:
Unless your underwriter specifies differently, all or some of your rehab costs will be set aside in an escrow account. These funds will be dispersed to you as you finish different stages of the renovation. At this point you need to provide us with a proposed draw schedule specifying exactly what you expect to tackle at each stage and how much money needs to be dispersed to you after each stage is completed. An example of draw schedule can be accessed via our Tools and Resources page.
Proof of Funds
You will need to supply most recent bank statements showing how much money you have for the transaction.
Proof of Business Ownership
We encourage our borrowers to form a business and borrow in their business’ name. For more information on the benefits offered by LLCs, please see our blog “Private Mortgage Lenders Love LLCs and Why You Should Too.” That blog contains information on how to form an LLC in Maryland, DC or Virginia. During the underwriting process we will ask you to provide the following documents about your LLC:
1. LLC Article of Organization
2. LLC Operating Agreement
3. Formation Letter from IRS with your LLC Tax or EIN Number
Driver’s Licenses, New Funding Resources’ Borrower Application and New Funding Resources’ Borrower Authorization for Each Borrower
In most cases each member of your LLC needs to be present at the closing and needs to personally guarantee the loan. Prior to closing we will need to collect a copy of the driver’s license for each of them. In addition, each borrower needs to fill out New Funding Resources’ Borrower Application and New Funding Resources’ Borrower Authorization forms.
We need to make sure that the title to the property you are buying is clear of any unexpected liens or unresolved claims. Our underwriters will work with a title company of your choice to do so. If you don’t have a title company preference, we can recommend several options. The title search might take some time and is out of our control, so make sure you’re selecting a title company who is thorough, fast and responsive. If you are buying a single family detached home, your title company will need to provide a survey of the lot to confirm its size and boundaries. All title company costs will be collected at the closing and will come out of your loan proceeds.
You would need to purchase an insurance policy for your property. This is a different type of insurance that you have on your primary residence or your rental property. It’s called Builder’s Risk Vacant Insurance Policy. You can purchase it from your own source or you can take our recommendation. Builder’s Risk Vacant Insurance costs will be collected at the closing and will come out of your loan proceeds.
Our experienced underwriters are here to help you with each stage of the process. We want to make sure that your loan closes fast, your risks are well managed and you are set for success with each property we fund.