Below is information that will be helpful to you so that you know how we operate, get some vital data about loans and know some requirements for being an investor.
The first thing to know is that even though you may request and receive a file from us, there may be additional items you want. If that is the case, you can ask for the additional items and they can be requested.
Typical files contain an application, appraisal, credit report, preliminary title report and a letter of explanation for the loan purpose.
In some instances, instead of an appraisal, comparable properties will be looked up and an analysis of the property value will be provided along with the comps. This will be accompanied by an appraisal waiver form. Appraisal waivers are normally only done when the loan-to-value ratio is at 50% or less.
Once a file is ready to be sent to investors, it will be included in a list that is sent out to all investors via email. Loan files are sent out to one investor at a time and the investor receiving the file has 24 hours to review it before it is sent out to the next investor.
In rare circumstances where the file is a rush or a difficult file, it may be sent to more than one investor at a time.
Once a file is approved, you provide your vesting (how your name is shown as the lender) then we draw the loan documents within 24 hours as long as there are no reasons for delay, such as the file being a purchase and the close of escrow date being in 2 weeks.
After the borrower has signed loan documents, you will receive a copy of the signed documents and proof of insurance as well as any other documents you require. Once everything has been completed to your satisfaction and everyone is ready to close, you can wire your funds to the title company and they can close escrow.
Loan-To-Value Ratio (LTV)
Calculating the loan-to-value ratio (LTV for short) is probably the most important part of any file. Regardless of the borrower’s credit and income, if anything goes wrong and you have to foreclose, the equity in the property is the thing that protects your investment.
At this point in time, we are going up to a maximum of 65% LTV. To explain how this works, we will take the example of a property that is worth $100,000. If the loan is for $65,000, the LTV is 65% because the loan is 65% of the property value.
The lower the LTV, the more protective equity you have in the property you are lending against. This is important to know because even a borrower with good income and credit can have things happen to change that.
Many investors in hard money loans choose between higher LTV’s with higher rates or lower LTV’s with lower rates. Because the risk is reduced with a lower LTV, the rates are usually lower too. Some investors split their money between these
You don’t have to be an expert in real estate or mortgages to be an investor in hard money loans but it doesn’t hurt. And you can always ask us questions if you are unsure about what something means.
There are, however, some very specific requirements that must be met. Along with a form that is required to be filled out by each investor who funds a loan, we cannot put you into a loan in which you are lending more than 10% of either your net worth (not including your home, automobiles and furnishings) or 10% of your annual income.
If you need help figuring this out, give us a call and we will help you with it.
For those who don’t want to put too much into a single loan or who don’t have enough available cash to do an entire loan, doing a portion of one and partnering with others can make sense. This is called fractionalized investing (because each investor would do a fraction of the loan).
There are two different ways to fractionalizing notes. First is to do it with others that are brought in by the broker (us). In this case, you don’t know the other investors. The second way is to bring in your own group of investors and you all do it together.
Both ways can work. It just depends which one works best for you. If you are receiving our list of available loans to invest in and want to do a portion of one, let us know.