Closing escrow with hard money

16 Replies

Hi, I have a house under escrow in Tennessee, planning to pull a hard money loan to close the deal and fund remodeling. I can pull together my own finances to close, but won’t have enough to Brrrr, and will have to work too hard to fund myself. I want to get this thing hard money financed, but am hearing things that make it sound more complicated than I thought. A hard money lender said I need to have an LLC for the purchase, 15k bank statement for last 2 months and $3,500 minimal fee for loan along with 12% interest on 13m loan. This probably sounds like no big deal.. Does this sound normal? This will be my first hard money loan, first LLC, and first Brrrr. I’ve done 2 other deals and purchased a few properties and am just learning the ropes of financing and wise RE investing.
@Jonathan Greer, responding to my first post like a champ, I’m also wondering if it is difficult to close a hard money deal on distressed RE when the agreement is CASH at closing. Will the hard money lender give you the cash to give to seller from your hand to the seller’s or does the HML pay the seller? Novice question and I don’t know if this even works to add to my first question..

That sounds fairly typical. My HML only needs one month statements, sometimes just proof that llc Is being formed Is good, and they can firm one for you for a fee.

Is the 3500 fee an origination fee, processing fee or what. Usually you have a processing fee covers all the doc prep etc. Then origination fee which is a percentage point of the loan. How much are you putting down and how much rehab are they funding?

Hml should be good for cash offer, if you are using realtor ask them, otherwise you might have to check with title or the seller to make sure, 90% of time it is good as cash.

I am not sure if HML can actually do real cash, usually it is wired day of closing to an account and title disburses it. A lot of the nuts and bolts of that is title

@Jonathan Greer all of that sounds fairly typical for a first hard money loan. As long as that $3500 is paid at closing, and not an "up front fee". Never pay a lender for anything up front other than an application fee and maybe an appraisal. Hard money is not the same as cash, because you will probably have a financing contingency in your purchase agreement. But most "cash only" listings that I've dealt with are Ok with Hard money as well.
@Caleb Jordan Ok, thanks for the reply. This stuff is probably simple once you’ve done it a couple times, but asking questions really helps shortcut the research into what is normal! So thanks a bunch. The $3500 is a minimal fee if the pecentage origination fee would be less. The hml is for $50k which includes 30k rehab expense. I can’t remember what their percentage was for the origination fee. Not sure how difficult it is to get hml for a major distressed property, with rehab cost more than purchase. I’ll check to see if hmlender can create an LLC for me etc.

Usually they want to see your purchase price and rehab as a certain percentage of the ARV, and if a rehab is over purchase price it may not be a big deal if the ARV is right. They will probably hold your rehab money in an account and have some sort of disbursement criteria set up for all rehabs.

@Jason DiClemente Thanks Jason, the seller wasn’t requiring cash, I just offered significantly below listing price and figured cash would appeal more to seller. I guess I’ll have to shell out my own cash for purchase if seller wants dollars in their hand vs. wire to escrow account. Can’t blame them if they do. Now the question is, will a hard money lender put dollars in your hand to close a deal, or is the only way to do that usually through your own funds? I’m already under contract with cash as the form of payment.. Seems like offering “cash” is a good way to offer the seller incentive to strike a deal. Has anyone else experienced this? If you are doing a hard money loan, do you include that in the offer for the form of payment/financing? How is it referred to, just “hard money loan”, or “loan”? All that being said, I don’t know if real cash could really benefit a person anymore than funds being transferred to their bank account, since escrow is no secret.
@Jonathan Greer you dont deal with "dollars" even in a cash deal. It's still wired money through the title company. I include a financing contingency when using hard money. My purchase contract lists it as a "business loan". Sellers like cash because it's the most likely to close and units the quickest way to close. You dont have to worry about appraisals or not being approved.

@Jonathan Greer

Money is still wired from one account to another with cash. No one brings physical cash (fiat money) to a closing unless they have time to sit around counting it.

Only time you need a money belt is at auctions.

@Jonathan Greer are you planning to roll into closing with a briefcase full of benjamins? Even if I was truly pay will my own money from bank account, I was have it wired to the escrow agent just as your HML would so it should be no different to the seller.
@Jason DiClemente totally makes sense! Just had to make sure “cash” didn’t mean I had to show up with a briefcase! Thanks

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