Does a proof of funds letter from a hard money lender guarantee the loan when making offers?

8 Replies

If a hard money lender provides you with a POF letter in order to make offers, does this mean that if an offer gets accepted they have to provide the loan? Obviously hard money lenders have certain criteria the property needs to meet before providing someone with a loan. Let's say the numbers don't fall within the hard money lender's criteria. What happens at that point if the offer was accepted? Thank you in advance for your feedback.

Michael, my name is Tom Kern and I am a hard money lender (HML) in Virginia. HML's provide pre approval letters and proof of funds statements to Real Estate Investors (REI) so they can make offers since everyone knows that without a pre approval letter and proof of funds statement the Seller, Seller's listing agent and/or Asset Manager will not take the offer seriously. The HML is not obligated to make the loan until the HML issues a loan commitment letter to the REI. The pre approval letter and proof of funds statement merely allow the REI to make offers that will be taken seriously so that the REI can be in the game.

When making offers using a HML the offer should be written as financed (not cash) and should include a financing contingency. A preapproval is not a guarantee you will get the loan.

Jon Holdman, Flying Phoenix LLC

Nope that doesn't mean you will get the loan if you have a hard money pre-approval letter....I had to learn that one the HARD WAY...You have to learn to get creative when looking for funds to make offers....but nevertheless I agree with Mr. Holman and Ms Bellamy....

Thank you guys. I really appreciate your comments.

Most lenders want take a POF from a HML unless it has a bank statement attach to it.

Joe Gore

The answer is no, the POF letter is not a commitment. As a hard money lender, before we issue POF letters we ask a few questions about the borrower and subject property so that we are not blindly sending out letters. When submitting the offer, buyer should always include a few days for loan contingency minimum for the lender to inspect the propert. Usually the inspection will be a requirement before any loan docs are issued. Make the loan contingency period a little longer to line up the financing if you do not feel comfortable your lender will close.

The loan from a hard money lender is contingent upon the hard money lender accepting the contractual terms. A hard money lender will allow a POF letter to be used across a spectrum of real estate purchase offers; therefore, it is necessary that a more in depth analysis is done when a property is placed under contract. However, there are no governing agencies determining what a hard money lender can and cannot do. So it is possible for a hard money lender to guarantee funds. I see that happening in instances where the property has already been analyzed by the hard money lender; however, a strong relationship could also allow for the same guarantee. Most hard money lenders are willing to discuss their process because they want your business. They also want to make sure you understand their process, and can abide by their individual lending quirks. Good luck! After talking with a few hard money guys you'll be far better versed in their lending process.