Hard Money Loan Closing: How Fast and Who Is Involved?

One of our borrowers’ first questions is, “How fast can you close on my hard money loan?” The answer is always “fast.” The closing speed is one of the main advantages of hard money financing. Forget about going through slow and aggravating six weeks of a traditional lender crossing every “t” and dotting every “i”—no seller will wait that long. To succeed in real estate investing, you must move quickly and be nimble. That means you need a hard money lender capable of delivering on those tight timelines.

However, the process takes time and effort, even with the streamlined underwriting guidelines used by hard money lenders. A quick closing requires the cooperation of several parties. If one of those parties drops the ball, it could delay the entire underwriting process. Let’s take a closer look at the parties whose efficiency and quality of work impact the speed of closing on your hard money loan.

Hard Money Underwriting: Parties and Their Timelines

Party #1 – Title Company. A title company plays a critical role in a real estate transaction by ensuring that the buyer receives a clean and marketable title to the property. A competent title company is a must if you want to close fast and hassle-free. At New Funding Resources, we leave it up to our borrowers to select a title company they want to use for the transaction. You might have used that title company before and were impressed by their customer service. That title company might be close to you geographically, making your commute to closing shorter. Or they might offer discounts to repeat clients, reducing closing costs. Whatever the reason you choose to use a particular title company, ensure you have complete competence in them. Tell your lender if you don’t know any title companies you can vouch for. We can recommend several we worked well in the past.

Once we know who the title company is, our underwriters place the title order with it. The job of the title company is to do several things. First, it’s essential to conduct a thorough examination of public records to verify the legal ownership of the property and uncover any issues or “clouds” on the title. This can include outstanding mortgages, liens or judgments against the property or owner, and disputes over boundaries. If any issues are found during the title search, the title company will work to resolve them before closing. This ensures that the buyer is not inheriting any legal problems tied to the property. Last but not least, the title company procures title insurance to protect both the buyer and the lender from future claims or disputes related to the title.

Expected Timeline: It typically takes five to seven business days for the title company to examine the title and prepare the settlement documents. The process can be delayed if there are unexpected issues with the title. Some of those issues can be resolved within days. Others might take weeks or months or, in some cases, stop the sale altogether.

Pary #2 – Appraiser: Hard money lenders are asset-based lenders, which means the value of your property is a crucial element of the transaction. At New Funding Resources, we base our loans on the property’s after-repair value. That means the appraiser will generally ignore the property’s current condition and base his value on the recently renovated properties in the neighborhood.

Your hard money lender typically has a list of local appraisers they work with. To meet the tight deadlines, the lender needs to order the appraisal as early as possible in the underwriting process. The common bottleneck is the borrower not providing the list of the renovations they are planning to do. It can delay placing the order and lengthen the process.

Expected Timeline: Once the appraisal is ordered, allow up to 3 to 4 days for the appraiser to arrange the appraiser’s visit to the property and up to 3 to 4 days for the appraiser to put together an appraisal report.

Party #3 – Hard Money Lender. Your hard money lender is a key player that manages the entire process of underwriting your loan.  The process starts once the borrower and the lender agree on the terms of a hard money loan and the borrower signs the Letter of Intent. The underwriters then place the title and appraiser orders and will interact with all parties to clear any issues.

In our experience, the process is a bit like herding the cats, but it is a part of the job description. The underwriters must be organized, have a keen attention to detail, and communicate clearly about what documents they need to move the process along. A good underwriter must protect a hard money lender from additional risk while at the same time looking for creative solutions to provide the funding.

Expected Timeline: A lender does not have control over other vendors involved, namely, the appraisers and especially the title companies. A proactive underwriter might speed the process along by consistent follow-up but ultimately have to rely on these vendors to do their jobs. Once all the documentation needed for closing has been collected, the lender’s management and legal counsel conduct the final review of the file. At New Funding Resources, it typically takes us 48 hours to do that final review and wire the funds for closing.

Party #4 – You the Borrower: For all the urgency borrowers feel at the beginning of the process, some are, ironically, the source of many system clogs. We have already discussed not providing a detailed statement of work early in the underwriting process. We cannot order the appraisal without it. Another example is not proactively working with your hard money lender on the draw schedule. A draw schedule is a document that specifies how the renovation funds are released to the borrower. A draw schedule is created jointly by the borrower and the lender and is signed at closing. A closing cannot take place without it.

The statement of work and the draw schedule are the only two documents that require some work from potential borrowers. The rest of our underwriting requests are simple: a copy of your driver’s license, your LLC documents, and perhaps a couple of more supporting documents here and there. As a borrower, you might not have direct control over the sources of major delays, but together with your lender, you can keep the process chugging along by being proactive and responsive.

Expected Timeline: Three to four days for the draw schedule. A day or two for the rest of the documentation.

While each party involved in hard money underwriting has its own timeline, the good thing is that they work in parallel with each other. The title and the appraisal orders are typically placed at the same time at the beginning of the process. While the title company and the appraiser are working on their parts, our underwriters can concentrate on collecting the required documentation from the borrower. Once the title work has been received, the focus shifts to either clearing any defects or preparing the title documents for the settlement. Our typical hard money loan closes within two weeks – unless additional time is required to address any issues.

I saw other hard money lenders advertise closings within 48 to 72 hours. Can you match this time frame?

First, we all know not to believe everything you’ve seen advertised. I’ve seen advertised hard money rates as low as 6%. It doesn’t mean that these rates exist. But guess what? We’ve actually closed several loans within 72 hours. Here is how to do a super quick closing: Have your appraisal and your title work ready. As we discussed earlier in the article, it takes us around 48 hours to review the final file and arrange for the fund transfer.discussed earlier in the article, it takes us around 48 hours to review the final file and arrange

But let’s be realistic. Typically, our borrowers don’t come to us with the completed title work and appraisal report ready. And when they do, it means that the lender they worked with initially had issues funding their loan. In such a situation – no problem! We will be glad to accept their title work and their appraisal report and fund you loan within 72 hours!

The last thing I want to mention is that closing speed is not the ultimate goal. The ultimate goal is managing your risk while giving you the edge over the competition. No one needs a sloppy but extra fast closing that results in issues affecting your property’s value and marketability. Give the professionals adequate time to do their job. It might take an extra day or two, but you might thank them at the end.