Lightning Speed of Closing Private/Hard Money Loans: The Pivot When Urgency is an Issue

Sometimes Borrowers Have an Urgent Need to Get the Proceeds of a Loan to Solve an Urgent Problem

By Dan J. Harkey

Real-life example: a successful closing

Summary:

The primary benefit of private money loans is speed...

These loans are funded by investors motivated by yield, which is the return on investment. In this context, yield refers to the profit or return an investor earns on their investment. It's a measure of the cash flow that an investor receives from a particular investment, usually expressed as a percentage of the investment's cost. The higher the yield, the more attractive the investment. This key factor motivates private money lenders to fund these loans.

article continues after advertisement

The second benefit is flexibility in underwriting requirements, such as credit, income, the condition of the collateral property, and borrower documentation.

With fast approval and often funding within 2 to 14 days for bank declines and fallouts (instances where a bank-approved loan does not close due to various reasons, such as changes in the buyer's financial situation or issues with the property), these loans provide a swift solution when time is of the essence. As a borrower with problems to solve, would you be willing to trade off lower interest rates at the bank for a quicker closing with higher rates and points?

Article:

The bank's delay forced them to release the $100,000 deposit proceeds for a two-week extension. Then, the unexpected happened: the bank was fixated on a seemingly insignificant condition -- a minor discrepancy in the property's title -- which became the 'straw that broke the camel's back.'

The couple was in a race against time. They needed to close the deal fast or risk losing their $100,000, a significant amount. The seller had a backup offer, which was a higher bid from another potential buyer than the couple's purchase price. This meant they were on the verge of losing the property if they didn't act swiftly.

In a state of panic, the couple turned to their knowledgeable mortgage broker for help. The broker's ability to pivot to a private money lender for a bridge loan -- a 12-month, interest-only loan -- was a game changer. This astute decision, made possible by the broker's knowledge and quick thinking, allowed the couple to close their deal and avoid losing their $100,000 deposit, relieving them of initial panic and stress. The broker's role in this process cannot be overstated.

article continues after advertisement

The private money lender wasted no time. They swiftly acquired the loan file from the institutional lender, which included the open escrow, preliminary title report, application, financial statement, bank statements, insurance information, copies of the rental agreements, credit report, background search, and appraisal. With a quick review appraisal, the private money lender approved the loan, substituted itself as the lender, drew up the loan documents and disclosures, and closed the deal in just five business days.

With their speed, flexibility, and potential to save a deal, private money loans are a valuable resource for borrowers needing quick funding. The private money lender played a crucial role in this scenario, providing a much-needed solution. Their timely intervention ensured the couple's deal was closed, bringing a profound sense of relief. The broker fee was well earned, and the couple was deeply grateful for the lender's swift and effective action, fostering a deep understanding of gratitude and trust in their relationship with the lender.

Dan Harkey
Educator & Private Money Real Estate Lending Consultant
dan@danharkey.com 949 533 8315
www.danharkey.com