There are instances when loan applicants need to close quickly. For example, you may need to follow through on a 1031 exchange in order to avoid a huge tax bill, and your window for acting accordingly is rapidly closing. Perhaps have a balloon payment due on your mortgage and you waited a bit too long to start looking for a replacement loan. You may have an excellent real estate deal available to you, but the seller may not be willing to wait a few months for a traditional loan to go through. In these situations, timing is critical, and you stand to lose a huge amount of money in different ways with each scenario. Remember that these are only a few of many real estate scenarios where a traditional bank loan’s processing time is not ideal or is simply not acceptable.
You may have heard that a hard money loan has a very fast turnaround time, but exactly how long is this? The reality is that it varies based on several important factors. Some hard money loans will take three to four weeks to close, and others may close within the next few days.
One of the first factors that influences the timeline of your loan request’s approval and funding is the lender that you choose to work with. In most cases, you will enjoy a faster overall experience when you work with a direct lender or investor. Some companies position themselves to appear as a direct lender, but they actually function in a brokerage role by actively searching for a hard money investor interested in your project after you submit a full loan request. As you might imagine, the fact that a broker needs to search for an interested investor can add unnecessary time to the timeframe.
In addition, each lender has a different requirement regarding third party reports and market research. Some will accept an appraisal that was not prepared specifically for them, and this can save a substantial amount of time and money. Remember that most traditional financial institutions need an appraisal and other third-party reports prepared for them. The use of an existing appraisal may not be possible, or it may need to be updated. This takes time and costs additional money.
Regardless of the lender who you choose to work with, your closing date will typically be subject to the title company’s efforts. A clear title is generally a requirement regardless of the type of financing that you use. The fastest turnaround time that you could reasonably accept as a quote is five to seven days, and this may only be possible when you have a complete loan package ready to submit to the hard money lender.
The Specifics of the Loan Request
Another factor that will affect the timeline for your closing relates to your specific loan request. Some hard money lenders want to physically visit the property before funding a loan. If you work with a local lender, there is usually not a delay for this. If your lender needs to make travel arrangements, this can add time to the process.
Hard money lenders generally also want to review your personal financial documents, entity documents if you are applying under a partnership or another entity and property-related documents. Specific loan requests may also generate the need for other documents that could take additional time for you to obtain and for the lender to review. For example, when you are applying for a loan on an apartment building that has been run into the ground because of poor management, you will need to identify a new management company to use. That management company will need to create a plan to turn the property around. It may also need to provide a resume and other documents showing its credibility.
Each loan request is unique. Because some loan requests are more specialized in different ways than others, additional reports or documentation that takes time to obtain may be required.
Regardless of the type of loan that you apply for, the general timeline is based on how fast the lender can work as well as on how fast the borrower can provide documentation requested. In many cases, the lender’s side may be on hold until the borrower provides documentation. With this in mind, the borrower’s responsiveness is critical to the overall timeline regardless of the lender that you choose to work with.
With some loan requests, an applicant for a hard money loan has already applied for a traditional loan and may have been turned down. This applicant may have a full loan package put together. All information required by a hard money lender may be ready to hand over to the lender immediately. When this is possible and when no additional reports need to be ordered, the hard money loan can typically close within the fastest time period possible.
As you can see, there are many factors that affect the overall loan process. If your loan request is time-sensitive, it makes sense to ask about timing before committing to a lender. In addition, plan to be as responsive as possible to requests for documentation.