Frequently Asked Questions
-
1. How do you define "Hard Money?"
2. Do I need good credit to get approved for a loan?
3. How long does it take to get approved for a loan?
4. How long does it take to close the loan once I have been approved?
5. Should I have an investment property under contract before I fill out the loan application form?
6. What is the term of the loan?
7. Do I have to fill out the loan application form each time I submit a new investment property for financing?
8. Do you pull my credit report each time I request a loan?
9. How can I find a property you will approve?
10. What is the interest rate charged?
11. What "Loan to Value" (LTV) are you looking for?
12. Can I get repair money to rehab my investment?
13. How many investment properties can I finance at one time?
14. Do I need to get an appraisal?
15. How does the escrow draw procedure work?
16. How much of my own money do I need to put in the deal?
17. Do you require a survey?
18. Do you make loans on rental property?
19. Will Diversified do an extension on my 6 month term loan?
20. How much is the typical loan going to cost?
21. How are the closing costs determined?
22. How much will my payments be?
1. How do you define "Hard Money?"
"Hard Money" loans or "equity loans" as they are sometimes called refer to non-conventional real estate loans. They are usually funded by private money sources and investors and not banks, pension funds, etc. Interest rates and points on such loans are usually higher. Terms usually range from 3 to 12 months. Hard Money loans have one basic requirement. There has to be some substantial equity in the property to give the lender a reason to invest their funds in an otherwise risky venture.
So, why would you utilize a hard money lender? The property to be purchased might be presently vacant and in need of repairs. It may be an older property in a failing neighborhood which has the potential for revitalization. It may be a foreclosure and can be purchased on a short sale. Or you may just need a quick closing to secure a property before you find an investor/rehabber to which you want to flip the property. Or you may want to purchase a run down piece of property, rehab the property, and refinance it for rental income. In all these cases, you would need a hard money loan because conventional financing is just not an option or it would take too long to secure. "Hard Money" is just a cost of doing business and an effective method of doing business as a real estate investor.
2. Do I need good credit to get approved for a loan?
Our approval is based upon your credit score, funds available, and the value of the property you want financed. We look at your credit to get a feel for who is borrowing the money in order to rule out people who obviously never intend to pay anyone. But, we also look at the value of the property after it is repaired, the price you are paying for the property and the cost of repairs. We look for ways to finance your investment, not for ways to turn you down.
3. How long does it take to get approved for a loan?
Within one or two days after you have submitted your loan application and documentation, we can usually make a decision.
4. How long does it take to close the loan once I have been approved?
After your submitted property has been approved, it normally takes around seven business days. Sometimes more, sometimes less. Many times it all depends on how long it takes to have a title search completed and schedule an appointment with the attorney for closing.
5. Should I have an investment property under contract before I fill out the loan application form?
Diversified can pre-approve you for our loan program prior to your finding the right investment property. Our process is two-fold: first we approve the applicant, then we approve the investment property you are interested in financing.
6. What is the term of the loan?
We write 6 month loans and can extend these loans for up to 24 months depending on your needs. But, the object of a hard money loan is to either turn the property quickly or have it rehabbed and refinanced with a conventional lender. Since Diversified does not have any prepayment penalties, you may prepay the loan anytime you wish prior to the term of the loan.
7. Do I have to fill out the loan application form each time I submit a new investment property for financing?
If it has been less than six months since you were approved for a loan with us, we do not require another loan application. Periodically, however, we will ask you to update your financial information for our records.
8. Do you pull my credit report each time I request a loan?
We will obtain your credit report when you submit your original loan application to us. We will periodically review your credit as our business partnership continues.
9. How can I find a property you will approve?
We can refer you to Diversified Referral Partners who offer competitively priced investment properties and help you select one which we could approve.
10. What is the interest rate charged?
We try to keep our programs simple. Our interest rate varies and varies depending on criteria that includes borrower experience, liquidity, and loan to value.
11. What "Loan to Value" (LTV) are you looking for?
Diversified has several programs for borrowers at 65% LTV or less. Please contact us for descriptions of loan types and programs.
12. Can I get repair money to rehab my investment?
You most certainly can. We fund all your repairs up to what the LTV will allow. We do require you to complete a detailed, itemized repair list of the repair work. An escrow draw schedule identifies the order in which the repairs should be made. After a certain percentage of the repairs have been completed and verified, the monies are withdrawn from your escrow account and forwarded to you.
13. How many investment properties can I finance at one time?
Our policy is to start with one property until we have an established business relationship with you. As you become more experienced and have successfully completed a few loans with us, we can look at funding multiple properties as they are identified.
14. Do I need to get an appraisal?
Diversified will order an appraisal from a qualified appraiser who is familiar with evaluating investment properties. The appraiser will determine the "after repaired value" (ARV). You will be required to prepay for a property inspection and appraisal.
15. How does the escrow draw procedure work?
Each draw request will require an inspection to ensure that the work is completed in a thorough and professional manner. After completing a certain percentage of the required work, you will fill out a "Draw Request Form" and forward this to Diversified. We will schedule an inspector to visit your property and authorize the release of your escrow funds.
16. How much of my own money do I need to put in the deal?
Points may be rolled into the loan subject to meeting our standard loan to value and credit criteria. You will need to make sure you have money in reserve to pay the monthly payments during the term of the loan.
Sometimes. If needed, the closing attorney or title company will provide that to Diversified and to you.
18. Do you make loans on rental property?
Yes, we do loans on rental property. It is usually when the property needs to be rehabbed prior to being rentable. When the renovation is completed, you will need to have the property refinanced prior to placing a renter in the property. Your "Builders Risk/Empty Dwelling" insurance policy will not cover you or Diversified once the property is occupied.
19. Will Diversified do an extension on my 6 month term loan?
If your payments are current and repairs are complete, you may qualify for an extension of your loan term. Such issues are handled on a case by case basis.
20. How much is the typical loan going to cost?
All loan transactions are different. The first loan we provide for you may be different than the third or fourth loan. How different will depend on the particular deal and the business relationship we have developed with you.
21. How are the closing costs determined?
Closing costs have always been a mystery to borrowers unless you close numerous loans. We, at Diversified want you to understand where your money is going and what costs are involved before going to your closing. Traditionally, you might never see a HUD-1 Settlement Statement until you get to the lawyer's office. For that reason, we will provide you upon request a list of typical charges for the services provided by the closing attorney. If you have any questions after reviewing the charges, feel free to contact one of our representatives.
22. How much will my payments be?
Your loan is an interest only loan. To figure your monthly payment, simply multiply the interest rate by the dollar amount you were funded (including any fees or costs which were rolled into the loan). Since the interest is computed on an annual basis, you simply divide by 12 (months) to get your monthly payment.