What Documents Do You Need to Get a Hard Money Loan?

laptop, office, hand-3196481.jpg

The US asset-based lending has reached a total market size of over $465 billion. This signifies that more and more investors are opting for hard money loans for their real estate investment projects. Less documentation and simple underwriting are some of the major reasons investors are choosing asset-based hard money loans over conventional ones. 

Hard money loans require an investor to submit fewer documents compared to conventional loans. A lender generally requires these documents to verify your income, assets, debts, and property details. The number of documents may vary from lender to lender and the loan requirement, here is a list of common documents required to get a hard money loan.

1. Purchase Agreement

2. Forms of Identification (Individual / Business Entity)

3. Proof of Insurance

4. Proof of Funds

These documents are sufficient for a real estate investor to get a hard money loan in a short time. Let us shed some more light on why these documents are required for a loan and their importance. 

1. Purchase Agreement

The primary document that defines the legal terms of a loan is known as the real estate purchase agreement. Made between a buyer and a seller, a purchase agreement serves as a legal binding between both parties and covers them from potential legal or financial trouble.

A purchase agreement states the terms and conditions under which the transaction will occur. A formal contract will be made between the buyer and the seller whenever a sale occurs and the title is transferred. This document is important to know the basic information regarding the buyer, seller, property, etc. The purchase agreement will generally include the following information.

  • Buyer and seller information
  • Property details
  • Pricing details 
  • Financing details 
  • Fixtures and appliances included/excluded in the sale
  • Closing and possession dates
  • Earnest money deposit 
  • Closing costs 
  • Conditions that can terminate a contract
  • Contingencies 

2. Forms of Identification

Identification forms are simply the ones that state and verify that you are the very same person you claim to be. Forms of identification generally include documents like your social security card, state-issued valid driving license or ID card, United States Passport, etc. Below is the list of commonly accepted identification documents to get a hard money loan.

Valid forms of identification

  • Valid Driver’s License
  • State-issued Identification Card
  • Student Identification Card
  • Social Security Card
  • Passport or Passport Card

If you are an individual seeking a hard money loan, then you will need to submit any of the two forms of identification listed above. Wherein, one identification form should be government-issued and includes a photo, like your driving license or passport. The second form must have your names printed on it, such as your social security card, insurance card, or credit/debit card.

For business entities looking to borrow a hard money loan, you will have to present additional documents like the certificate of incorporation or certificate of partnership. Some lenders may require different operating documents like a limited liability company (certificate of organization).

3. Proof of Funds

Lenders may ask for documents to prove your financial status in order to make sure you have the required funds to invest. These types of documents are mostly required when an individual or business entity is about to purchase a real estate investment property.

The documents are important for a lender to make sure you have enough funds to put a 10% to 50% down payment and cover the closing costs. The proof of funds can be determined by your recent bank statements. Some lenders may verify other assets owned by a borrower as proof of funds.

4. Proof of Insurance

A borrower will have to provide proof of insurance of the property offered as collateral. This is to make sure the property is covered against any kind of damage. A certificate of insurance issued by the insurance company serves as proof of insurance that provides a guarantee that the property is insured for a specified period.

A borrower can provide the homeowner’s insurance policy to ensure a lender that the property is covered. You can also provide the ‘homeowners insurance binder’ as temporary proof of insurance in order to get a hard money loan. These documents are sufficient to get a hard money loan, but some other documents are essential to close a hard money loan.

Documents essential to close a hard money loan:

Deed of Trust

A legal agreement is formed between the borrower and the lender at the closing of a property known as the deed of trust. A deed of trust has three parties involved in it:

1. Borrower

2. Trustee

3. Lender

The deed of trust assigns a ‘trustee’ the possession of the property or the legal title to the property until the loan is paid off. The trustee is usually an independent third party who is neutral and unbiased. The trustee also oversees that the borrower and lender follow all the procedures, loan terms, and deadlines.

After a loan is fully paid off, the trustee provides the possession of the deed to the buyer. Deed of trust is useful for a lender to claim ownership of the property, in case of foreclosure due to the borrower defaulting on a hard money loan.

Promissory Note

A promissory note is a document that states the borrower’s promise to pay the lender a definite sum of money on a specified date. The promissory note usually contains information regarding the principal amount of the loan, interest rates, loan maturity date, issuance date, and place, etc.

The deed of trust and promissory note is essential for closing a hard money loan. If you are an investor looking to refinance your existing hard money loan, then you need a different set of documents.

HUD’s Final Remarks

This is a federally mandated document that details all of the costs and fees related with the property transaction, including all fees paid at closing. Its purpose is to clear up any doubts or ambiguity about the true costs of purchasing a home, as well as what is paid to the title firm at closing. This is a standard form that should be used in all United States real estate transactions.

Loan Agreement

This document summarizes the entire agreement, including detailed details regarding the property in question, the total amount of the loan, the interest rate, the loan’s length or term, and what will happen if payments are not paid.

Personal Assurance

This paperwork is normally optional, more prevalent in a hard money loan, and not usually included in a traditional mortgage loan from a large bank. This is usually a basic document that outlines the borrower and lender’s agreement that if the loan is not paid in full on time, the collateral used to secure the loan will become the lender’s property.

Guarantees come in three varieties: limitless, limited, and conditional. These terms should have been agreed upon between the lender and the borrower prior to closing, so they should not come as a surprise at the closing table.

It’s crucial to know your rights and duties before taking out a loan. Do your homework before coming to the closing, and don’t be hesitant to ask questions if you have any. Before that day arrives, educate yourself and make sure you understand what you’re signing.

Documents required for refinancing a hard money loan:

An investor will have to refinance their hard money loan after a specified time. The refinancing could be for purchasing another property, financing repairs, or paying off the existing loan. Most of the investors use refinancing to switch their hard money loan with a long-term mortgage loan with lower interest rates to avoid the high-interest rates of hard money loans. To refinance a loan the borrower will have to produce the following documents to the lender.

1. Proof of Income

Lenders would need proof of income like your pay stubs to verify your current earnings to make sure you can pay the monthly installments.

2. Title Insurance

The title insurance documents protect a lender or homebuyer from a financial loss due to the defects in the title of the property.  

3. Homeowners Insurance 

Lenders require a borrower to get homeowners insurance to ensure that they can cover up any repairs in case of an incident.

The Bottom Line

Hard money loans require fewer documents compared to conventional loans. A borrower needs to provide just the documents required to verify their income, assets, debts, and property details to obtain a hard money loan.  

Get hassle-free hard money loans with minimal documentation from 14th Street Capital. Our hard money loans are designed to bring speed to the loan approval process. We offer customized hard money loans with flexible terms to best suit your financial requirements.