Steps for using a HML

2 Replies | Dallas, Texas

Get asked about this a lot so figured I'd share. Every HML will work somewhat differently but I will let you know the standard flow:

1) Get pre-approved with an HML - This should be free. DO NOT PAY AN APPLICATION FEE. This is a sign of a possible scam.

2) Look for a property and get it under contract.

3) Send the executed contract to your HML. They will let you know what other little paperwork may be needed and probably order an appraisal. I am always skeptical of the HMLs that don't require an appraisal. An appraisal is the only thing you should ever pay for before you close the loan.

4) After the appraisal comes back you will get a document that outlines the amount to be borrowed and all fees that will be relating to the loan (I would suggest to ask for an example of this document when you are searching for an HML so you will know what fees are going to show up).

5) Close the loan with title company, typically chosen by the seller

6) Begin work and make draws on any repair balance. Most HMLs will pay for work completed. To have the funds released you need to have a third-party inspect the house (typically handled by the HML) and the repairs made. Then they will release the funds based on what is finished.

7) Sell the home and payoff the loan / rent the home out and refinance the borrowed amount.

Hope this helps give a simple time-line. If you are looking to do a refi at the end of the hard money loan, I would suggest lining up that refi company at the same time you are looking for hard money. Your HML may have a company they work with frequently that will make it a smooth transition so ask.