Hard Money Question?

13 Replies

So I'm in the process of looking for my first flip and plan on using a HML for the financing...question I have is when my agent is asking if I'm using financing or cash, what do I tell them? Would the HML be considered a cash transaction...Thanks!

You're using financing.  Here's a good rule of thumb:

Your money in an account with your name on it = cash offer.

Someone else's money that you have to borrow = financed offer.

Yes it would normally be considered cash. That question is usually used to determine if there will be a financing contingency in the contract. If you want the contingency in there you could write the contract dependent on getting the HML but if you already know the lender and know that he can close the deal you can make it a cash offer with a quick close.

@Peter M. I agree with Peter, if you are not using a mortgage contingency and don't mind the risk to lose earnest money, I still consider it a cash offer. A regular mortgage can take at least 30 days to get done but a HML can be completed in 14 days. If you go to closing with a loan package, it shouldn't make a difference to the seller as long as you close on schedule. I've had a few sellers or agents make a stink but my response is usually, I have the cash to close, but if I have the ability to push through a loan and keep my cash in hand, why wouldn't I take that opportunity?

However, I only recommend this to experienced investors that are willing to take the risk of loss, have the relationships with HML's to get the loans done fast, and have the ability to raise cash for closing in case things go sideways.

@Peter Padalino it is not a cash offer.  There is a note and mortgage, so you have to consider it financing.  With that said, there is no need for a financing contingency and when your agent marks the type of financing it would be OTHER.  They can then write in HARD MONEY.

If you make it as a cash offer, before closing you may need to get an addendum changing it to financing depending on the title company.  

Better to be up front about it, then have to make a change mid process.

If the listing agent understands HML, then they will know that it works like cash, but isn't considered cash.

@Peter Padalino I have a different perspective (me? Go figure). To me, paying cash can simply mean no financing contingency and Quick Close. If there is a HML on the back end making that happen a Seller won’t care. In other words don’t worry about claiming to be a cash buyer if you can close like a cash buyer.
@Peter Padalino FYI in every deal I’ve done in the last 4-5 years I’ve been a cash buyer. Yet I get a loan. And not even an HML. At this point I have a few traditional lenders (local banks charging 4.75-5’ish %) that can close in 30 days. Normally appraisal timeframe limited.

As an agent, if there is no mortgage contingency in the contract, I would be asking the buyer to provide proof of funds. So, if you have funds to purchase in cash and provide the proof of funds then I think it is ok to then go and get a hard money loan to close if you can.

However, I also always view sales contracts as a relationship and want to be as open and honest as possible/practical. So, I would likely also explain that while I have cash to close I intend to pursue a hard money loan to complete the deal. I think a seller would be comfortable with that knowing if you can't get the hard money you still do have cash to close.

If you don't have cash to close, I do think you should disclose what your intentions are for funding the deal to the seller. A deal falling apart can negatively affect a seller and they have the right to know how a buyer intends to conduct business with them. I would rather run the risk of losing an occasional deal by being honest than run the risk of disadvantaging someone just to make some more money.

Morning Kevin...thanks for the reply. 

It's not at all that I'm trying to hide where my funds are coming from, I just want to make sure that when my agent is drawing up an offer, I'm being accurate with the answer to the question..."is this a cash purchase or are you using conventional financing?" 

It sounds like the answer is "other - HML". - @Sean Bloomquist

Thanks again.