Packaging Your Hard Money Deals - SFR’s

January 17, 2008

If you’re a broker in today’s market, you know that money has tightened up dramatically.  Hard money has become the new subprime, and many brokers are finding themselves placing hard money loans for the first time.  To make things more difficult, hard money lenders are inundated with loan requests.  If you don’t already have relationships with individual lenders, you need to package your file properly to ensure it gets a fair shake.

All files are going to require the same basics, 1003, credit report, appraisal, signature authorization, mortgage statements and hazard insurance.  Make sure you have these items before trying to place your loan.  Once you have these items, save them as PDF’s, label them so their label matches the contents, and make sure they are clean and legible.  If your 1003 looks sloppy or cannot be read, you’re going to have a tougher time securing a loan for your client.

In addition to the basics, you really need to put together a loan summary.  This does not have to be long, in fact you should try to keep it as short and concise as possible.  For SFR transactions, there are a number of important pieces of information that will allow an investor to quickly analyze your deal.  Putting it together in an easy to read copy will ensure it goes to the top of the pile.

The first item to address is the requested loan amount, what position it will be in (first, second, third), and the loan to value.  Next, you will want to let your investor know if the property is owner occupied or non owner occupied.  Is it a purchase?  If so, how much cash down does the borrower have, how much is the seller carrying back, what additional collateral does the borrower have, if any?  If this is a refinance, you will want to include the original acquisition date and cost, a clear breakdown of the individual liens currently against the property, and payoff information.  If the borrower is requesting cash out, address how much cash out they would like, and include a use of funds breakdown.

Next, include information about the valuation you have that determined the loan to value quoted.  If you have an appraisal, state the value given, when the appraisal was done and note that it is “per attached appraisal”.  You should also go to Zillow and look up the property.  Include the value returned in addition to the appraised value.  Your private money lender will appreciate that.  Even though they will do their own value review, the fact that you are giving them more information on the value than most people would will give you some additional credibility.

Finally, include a brief overview of the borrower and their situation.  If they are in foreclosure because their son got sick and they had no medical insurance, say that.  Don’t hide any problems with the file, put them all on the table and address them.  In this section you want to make a concise sales pitch on your borrowers behalf.  Make sure to touch on why they need hard money, their ability to make the payments on this new loan, and how they intend to exit the loan.  If they can document their income with bank statements, pay-stubs, W-2’s or in another manner, make sure to say so.  Put this summary in a word doc and attach it to your request, along with the supporting documentation.

Packaging your files in this manner may take a bit longer in the beginning, but it will save you time throughout the rest of the transaction.  It will also ensure that your files get read in a timely manner.  I will put off reviewing a file that is thrown together in a hap-hazard manner if I have numerous other files packaged well.  With the large influx of hard money requests, it is important to make your file stand apart from the crowd.  It will also give you instant credibility and allow you to build strong relationships with investors, and let’s face it, this business is all about strong relationships.

Check back in often, I will be addressing how to package commercial, land, construction and other deals in the future.  Good luck!

Posted in Broker Resources