How to describe hard money lending in a contract

Question

Hi,

Im making an offer on a property that I want to flip using hard money lending and im not sure what to put in the financing chapter of the conract. is it a sort of mortgage? is it cash? if its mortgage should i add a mortgage contingency?

Thanks,

Doron

Andrew Postell · Answer

@Doron Rice this is a common question. This is a mortgage and there should be some type of mention that financing is being used.  You can use the third party financing addendum if you would like but i would suggest making sure that the seller understands that you can close quicker than normal loans.  Maybe include it in your offer cover letter.  Hope this helps!

Mike H. · Answer

If you can avoid a financing contingency, you definitely should. Financing is one of the biggest reasons deals fall apart and sellers - especially banks - hate seeing contingencies in there. The other trick that owner occupants use is that they'll put that contingency in their offer and then just tell their lender to decline them so they can back out of a deal.

I only buy with hard money. And I put my offers in as no contingencies (financing or inspection), 15 day close, commercial rehab loan.

Most sellers can't close in 15 days anyway. But I put it in there because my hard money lender can and then they know that I don't have some sort of 203k conventional rehab loan or something. And the 15 day close with no contingencies makes it real clear that the deal is going to go through.

When they start countering on my offer price, the other thing I'll do is bump my earnest money up. I know I'm closing so I'll go up from 1k to say 3k and bump my offer up another 500 or something (on an 80k to 100k offer). Not much of a percentage but enough for them to see I'm giving up something to try to get this house and that my initial offer wasn't just some fishing attempt (even if it may have been). :-)

I'll even go up to 5k or 6k sometimes as a way to bump my offer and that has seemed to help the seller be more willing to come down on price.

Thats how I deal with my offers and hard money. You want everyone to know there is financing. It is NOT a cash deal. But you want to differentiate yourself from a conventional financing offer too.

Hard money is basically right in the middle of the two. Better than conventional financing. Not as good as cash. But there are some things you can play with it to make it almost as good as cash (i.e. no contingencies, more earnest money, quicker close).

Wayne Brooks · Answer

Yes, of course it is financing, with a mtg involved.

Jose Trevino · Answer

When using the financing addendum how do you write it in on TREC contract. There is no check box that seems appropriate

Doron Rice · Answer

@Andrew Postell Thanks for your input!

How to describe hard money lending in a contract

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