Every type of lending involves at least some paperwork. Hard money lending has its own paperwork, but the requirements tend to be substantially less compared to what traditional lenders require. Among our requirements are a small number of third-party reports. You are probably familiar with such reports if you are a regular hard money borrower.
Third-party reports are essentially reports completed and submitted by parties not directly involved in a hard money loan. For our purposes, there are three types of reports that could come into play on a typical transaction: the appraisal, the title report, and the survey report. The details of each deal dictate the types of third-party reports required.
1. The Appraisal
The appraisal is probably the one third-party report almost everyone understands. Furthermore, appraisals are not unique to hard money loans. A traditional lender will always seek an appraisal before approving a residential mortgage. Life insurance companies do appraisals on properties before accepting them as collateral. You know the deal.
Appraisals are critically important to hard money lenders due to the fact that we lend based on asset value. If you are requesting a loan in order to acquire a piece of commercial property, that property becomes collateral on the loan. We need to have an accurate valuation of that property in order to make an approval decision. That is where the appraisal comes in.
2. The Title Report
Before a real estate transaction can close, a title search must be run. The point of a title search is to discover if there are any unsatisfied liens on the property. A search will also uncover any possible questions about who actually holds the current title. Both buyer and lender need to have confidence that no title issues will prevent closing or create legal problems in the months and years following.
All the data presented following a title search is contained in the title report. Most title reports also include commitments and policies – which are little more than assurances that title insurance will be issued. Some lenders will not close without such commitments.
3. The Survey Report
In addition to running a title search prior to closing, lenders often require land surveys for the purposes of establishing boundaries, subsurface improvements, and even restrictions that might be applied after closing. Surveys are common for commercial real estate transactions.
The data produced by a survey is contained in the survey report. Survey reports tend to be extremely detailed and include everything from easements to encroachments and a property’s legal description. Survey reports give lenders essential information they might otherwise not have access to. As a note, at Actium Partners we don’t require survey reports.
Paperwork Requirements Are Minimal
If you are new to hard money for real estate transactions, do not let these three reports scare you away. Third-party reports are a normal part of any type of lending. Just know that paperwork requirements are minimal in the hard money arena. Hard money lenders, like us here at Actium Partners, don’t require nearly the same volume of paperwork.
Our paperwork requirements are very manageable. Once you understand them, you can get all your paperwork together before you apply. We handle third-party reports on our own. As a result, you get a streamlined application and approval process that gets you to closing and funding a lot faster than the traditional lending experience.
Third-party reports are part of our business. But they are nothing to be afraid of. The reports we request are designed to protect both you and us. They offer the more detailed information we need to approve, close, and fund hard money loans. That is really all there is to it.
