Congratulations, you’re pre-approved for a private hard money loan with New Funding Resources. Now you can concentrate on the most important thing – finding an investment opportunity that is right for you. It might take you sometime and it’s OK: we want you to find a rehab deal that would make you enough profit to compensate for your time and effort. Meanwhile, here is some information on how our underwriting process looks like and what documents you would need to close on your private hard money loan fast and easy.
Ratified Sales Contract
We are always here to help you evaluate a potential investment opportunity, but our official underwriting process starts only when you have a ratified contract. Once you have it, we will run a detailed analysis on the property you’re buying and will start working on your Letter of Intent.
Scope of Work
You need to provide a detailed description of rehab work that you intend to undertake. 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 rehab and needs to be submitted to us before we can issue a Letter of Intent.
Our loans are collateral-based which means that we secure them against your property. As a private hard money lender, we base our loans on the after-repair value of your property as opposed to its current value or its purchase price. This is why we need your scope of work before sending an appraiser to your property. An appraiser will inspect the property to confirm its after-repair value based on the work you’re planning to complete. The after-repair value will be determined based on the comps of similar size and style that have been renovated to the same extend. With us, the cost of the appraisal is your only out-of-pocket expense. You can pay it directly to the appraiser.
Hard Money Letter Of Intent (LOI)
Once we have your Ratified Sales Contract and the Scope of Work, our team will get cranking on the Letter of Intent. A Letter of Intent is a document that specifies the terms and conditions of your private hard money loan. Think about it as our commitment to fund and close your hard money loan – provided that all underwriting conditions are met. Unlike a hard money Proof-of-Funds letter that is based on your strength as a borrower, a Letter of Intent is specific to a particular property.
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 and Borrower’s Application 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 a right 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.