Hard money lenders like to market themselves as private lenders capable of approving and funding loans much faster than conventional banks. Some even boast that they can do it in 24 hours. But how is that possible? How can a hard money lender hand the borrower tens of thousands of dollars in cash in one business day while it takes a typical bank months?
First and foremost, hard money loans can range from a few thousand dollars to millions. The actual size of a given loan has very little impact on how quickly it can be approved and funded. That is one of the many benefits of hard money. According to Salt Lake City’s Actium Partners, hard money’s ‘secret sauce’ is its asset-based nature.
More About Asset-Based Lending
Conventional lenders make approval decisions based on a borrower’s full faith and credit. Underwriters zero in on borrowers to learn everything they can about income, tax position, credit score, borrowing history, debt load, etc. Why? Because they make approval decisions based on their perception of a borrower’s ability to repay.
Asset-based lending is entirely different. Hard money lenders do not look into income, credit histories, etc. They are interested in whatever asset the borrower puts up as collateral on the loan. Given that the majority of Actium’s loans go to real estate investors, the properties those investors are buying act as the collateral. His long as the properties are worth more than the amount being requested, the chances of approval are good.
Comparatively Few Paperwork Requirements
Conventional lenders require a ton of paperwork in order to document a borrower’s income and ability to repay. It is not unusual for a bank to require dozens of documents covering everything from bank statements to several years’ worth of tax returns. All that paperwork needs to be reviewed and verified. It takes time.
On the other hand, hard money lenders have comparatively few paperwork requirements. For a real estate transaction, they might require a copy of a purchase offer along with pictures of the property, a copy of its most recent appraisal, and the borrower’s ID. If the property is already being rented, copies of any existing leases are also requested. But that is about it.
The Appraisal Takes the Longest
Hard money underwriters can review supporting documents fairly quickly. There’s not much to look at. What takes the longest in the hard money game is asset appraisal. Whatever asset is being offered as collateral needs to be appraised before approval can be given. Fortunately, many hard money lenders have their own appraisers on staff. Others contract with local appraisers to do the work for them. Either way, properties can be appraised as quickly as appraisers can get to them.
Funding in 24 Hours
With all of this explained, it should be easy to understand how hard money lenders can approve and fund within 24 hours. Actium can do it when circumstances demand.
As soon as a borrower contacts them, the wheels are in motion. The borrower can submit an application along with the required documents. Loan review can begin as soon as those documents are received. Meanwhile, an appraiser can be dispatched to the property in question. Within a couple of hours, Actium can give its approval.
Loan documents are prepared and sent to the borrower for signature. At that point, it is simply a matter of digitally transmitting those documents to a title company along with the actual funding. And because everything is done online, there are very few delays. It is quick, easy, and efficient. And now you know.