A friend of mine approached me about being a possible hard money lender on a property. I've never been a lender so I literally have no clue what documents or steps are needed.
Here's what I know.
- Owner owns the property free and clear
- Wants a short term (3-4 months)
- First lien position
- Asking for $110k. Property value $360k~
- Property owner is self employed, can't get a loan from a bank
- Primary residence for owner
How would you underwrite this deal (property and owner), negotiate terms, ect?
What documents/disclosures are needed?
Exit strategy...what if the owner doesn't pay monthly payments or doesn't pay off at the end of the term? Foreclosure?
Any advice is greatly appreciated.
If a friend approached me with first position at 30% LTV I would most likely help them out. Realize the rules change for lending on someone's owner occupied property, but on a one-off deal like this, I'm sure your state will allow a personal loan for such a small amount without many stipulations. You can go to a company like DocMagic and have them create a set of docs. for your state for under $50 and have the necessary disclosures you'll need them to sign. Good luck. I hope this loan doesn't change your friendship . . . that's definitely happened to me before.
I'll check out DocMagic, thanks for the suggestion. What rules change for owner occupied over non-owner occupied?
Protections for the home owner / occupant. I'm not a real estate attorney to run through them with you, but the protection goes to the tenant of the home more than the lender and the disclosures and documents change. I only lend on non-owner occupied for that reason.
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