If you have found a property you want to fix and flip but you have never financed through a hard money lender before, the process may seem a bit overwhelming. The following is a walkthrough of the process to help you better understand what you can expect.
Let us first look at the parties that will be involved in your loan funding and closing:
The first step is applying. This process can typically be done online through a lender who specializes in lending to real estate investors in your area. Direct Investors lenders specialize in several cities and states; however there are virtually no nationwide hard money lenders due to the localized nature of the business.
During the application, you will need to explain why you need the loan, which is important because it matches you with a loan program that will fit your needs. These loans are highly customizable, and there are programs for fix and flip properties, investors who want to finance land to build property, or investors who want to buy a rental property. This application process will also involve discussing your experience level with real estate investment, as well as your skills and exit strategy. All of this information will determine the rate you receive, as well as the terms of your loan.
After you apply and are approved for the loan, the hard money lender or possibly a real estate agent will order escrow and title services to get the process started. The title company will gather information about the borrower and seller, if applicable, conduct a search for liens, judgments and easements, and create a preliminary title report. Next, the escrow company accepts deposits, reviews documents, obtains payoffs for any existing liens and handles other details.
Once you sign the loan documents, your hard money lender will wire the loan proceeds.
The process works in much the same way if you plan to buy a property at auction. You will place a winning bid, and the loans must be funded by the next day. You will need to provide your lender with the property address, purchase price and estimated property value. From there, you will be contacted almost immediately and notified of the loan amount. You will sign the loan documents and confirmation will be given to the trustee so you can immediately start fixing up your new investment property.