All of my financials for pre approved hard money....what gives?

Question

I'm looking for a hard money lender and I am being asked to provide all of my financials and credit for a 'pre approval'...I'm confused...why would there be a pre approval without a deal being submitted? and why am I being asked for so much?

Account Closed · Answer

I'm a hard money lender. I lend on commercial properties as well.

Not sure I agree that asking for money up front is a big red flag. That's too vague. Asking for points up front; that's the red flag. We get the cost of credit, background (we don't lend to felons) and the cost of the appraisal/BPO up front when the borrower finds a property. That establishes the ARV.   The reason; I would have wasted hundreds of dollars this month alone if I didn't get the cost of a credit report up front.

True HML's that are asset based are rare these days. Most have score requirements and want to see bank statements to make sure you can close. Bottom line: the borrower matters.

Tom

Mike G. · Answer

Be careful before handing over your financials.  Make sure you are working with a reputable lender, hopefully one referred to you by someone who has used them before.  Make sure you meet with someone from their company in person at their offices.  Do sanity checks online also.  You will be giving out a lot of important personal and financial information to them.

It makes sense to gather all the information you need and fill out their required forms, but you might want to hold off on handing it off to them until you have a deal lined up.  That way, if you don't get a deal soon or if you change your mind about which lender to use, you haven't put any of your personal info out there unnecessarily.

Jay Hinrichs · Answer

@Vinny Gaines

Long gone are the days of PURE equity lending by most reputable HML.. Hard money lenders got killed in 07 to 2010 just like banks ( me included) ... So now a days most lenders will qualify you just like a bank then rate you based on what you provide.. worse credit and experience are going to pay higher.. Better borrowers lower etc etc.

Like in our market so many really good builders had to file BK back in 08 to 210 they are not bank able today.. But they are prime candidates for HML.. they are bouncing back have experience and usually have at least 20% skin in the game.. those are prime candidates for most HML.

@J  Scott

AS J mentions this lender is probably being pro active getting you pre approved.. I know in our market you must close in 30 days or less to be competitive at all.. So the lenders want to make deals just as bad as you want the deal.. They want this part done so that when  your ready they can pull the trigger.  And again as J. mentions do not get sucked into up front fee's.. A small app fee to cover credit report is OK.. As well as you paying for the appraisal.. anything else is not warranted and or asked for by HML that can actually perform.

Joel Owens · Answer

I have talked with many HML before. Used to back in the day there was no credit check.

HML's have explained the reason they want to look at credit is incase you rehab the property fully and CAN'T sell it. They want to know your credit is good enough to push you into a regular investor loan with one of their lenders so they can retire the HML loan.

HML's make money on churning points. They do that buy getting loans out and back fast. The ongoing interest makes them money but the points gives the pops in return.

Many do not want to hold out a loan for a long period of time.

Jeff S. · Answer

The business purpose side of this industry (where 90% of HML's reside) is largely unregulated @Vinny Gaines, and state law not withstanding, lenders are generally free to loan under any criteria they want.  When someone tells you how it's done, what they are really telling you is how they do it.  These are non-institutional loans and there is little consistency.  No method is right, wrong, or better than another.

Many lenders use mortgage pools for funds and/or sell their notes to investors.  Since they deal with the public, they often have or want to be more conservative than direct lenders who fund their loans internally and possibly hold their notes.  All of this can work to your advantage.

You seem to have found a lender who wants to enjoy hard money rates using what appear to be conventional lending terms.  Pretty common. There are still direct lenders out there who will value your deal more on the asset than your credit or income.  It's an extremely competitive business and if you are not happy with the terms you found, then find a program that fits your deals, but don't accept that this is now the way it is. It's not.

Vinny Gaines · Answer

Thanks to all for your input, I can see the HML point of view quite clearly.

David T. · Answer

Vinny, take a read through this and it might help give you a clearer picture of how the business works ...

http://affinityg.com/ultimate-borrowers-guide-hard...

Nick Wing · Answer

Every lender is different. Although the loan is asset based, lenders must verify you are who you say you are. They also will look at your financials not only to protect themselves but to protect you. Some people have an asset that may qualify for a loan, but the individual may not be able to pay more than a month or two of interest payments, and/or may show very little income. For the most part we run credit and ask for taxes to verify identity. Usually taxes and credit will not disqualify a borrower unless there are multiple bankruptcy, foreclosures, or fraud/criminal activity.

As for using it for a "pre approval", some lenders will make a file with all of your personal documents, corporation documents. They can verify all of your documents prior to you bringing an actual deal so that when you do bring in a deal all they will require you to provide are the documents for that specific transaction. Some lenders prefer to do this, some prefer not to work on a file until there is a deal on the table. We let our clients know the faster they provide documentation the faster we can close. Therefore some have set up files with their info so that when the deal comes we can close in as little as a day or two.

Jay Hinrichs · Answer

@Vinny Gaines

HML may say that but that's not the case... they are just advertising and trying to keep up with what the others say... If you can find a HML who does not pull credit and purely asset lends then you have found a rare company indeed... Even prior to the GFC we still required credit and tax returns.

Vinny Gaines · Answer

I was under the impression that hard money lenders lend on the basis of the actual deal..I've seen so many advertise that personal credit wasn't a factor. I'm very leery about letting companies run credit especially when I didnt think that my credit wasnt a factor on a deal.

All of my financials for pre approved hard money....what gives?

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