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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   May 2015

Help Your Hard Money Loans Blast off

Subtle differences can drastically speed up the underwriting process

Help Your Hard Money Loans Blast off

Underwriting hard money loans is similar to that of traditional lending. Regardless of what type of loan it is, underwriting is still underwriting.

As with any loan file, underwriters will review every piece of the entire file and ask questions such as, “Will debt-service payments be manageable for the borrower if occupancy levels drop suddenly?” or “Is there a viable exit strategy for the loan?” The underwriter may offer immediate funding approval, or may request additional documentation from the borrower.

Just like with traditional loans, underwriters may identify “conditions” for funding a loan. In this case, the borrowers may have a loan approval in hand, but there will be final conditions for funding on the loan.

There are some distinct differences between the two that a commercial mortgage broker should not ignore, however. By paying attention to these differences, the underwriting for your hard money loans could get a much-needed burst of speed.

The amount of time it takes an underwriter to complete the task depends on a variety of factors. These include, but are not limited to, the deadline for funding, the process and effectiveness of the lender and the complexity of the transaction. In commercial hard money lending, underwriting can sometimes be completed in the same day, but typically takes one or two days. On a more complex commercial hard money loan, underwriting can take as long as two weeks, particularly if a commercial loan transaction has multiple properties being crossed or title issues.

Fortunately, there are ways to get your commercial hard money loan through underwriting faster, and the following tips should help.

Understand the lender’s process

Make sure you understand the process, specifically the underwriting process, of your chosen commercial hard money lender. Because every lender has a different process and procedure for funding loans, don’t assume it’s the same as a lender you may have used on previous loan transactions.

In addition, be clear about typical turnaround times, and try to get a few references from other commercial mortgage brokers who have previously closed loans with the lender under tight time frames. Do not be afraid to ask questions. If you are not sure about something in the process, take the time to understand it.

Prepare your borrowers for the entire process, including possible bumps in the road. And particularly when submitting the loan after the 15th of the month, don’t be afraid to ask the lenders if they are managing a full pipeline through month-end. If a lender is busy before the calendar turns, underwriting may take longer than expected.

Beware of information overload

In traditional lending, commercial mortgage brokers will paper a lender to death. Many brokers pride themselves on providing the lender with one digital file that contains every imaginable document related to a loan transaction.

The logic here is that underwriting will go much faster if all of the documents are there in one large zip folder, right? Wrong. This is not the proper protocol for underwriting in hard money loans, and it may actually slow down the process.

In commercial hard money lending, the focus tends to be primarily on the asset and secondarily on the borrower. The rule for submitting files to an underwriter on a commercial hard money loan is to only provide the documentation that is requested — nothing less, nothing more. It is a good idea to have all of the other documentation waiting on the sidelines, should an underwriter request it, but resist the urge to do the same thing you would do on a traditional loan submission.

Anticipate questions and requests

Every good commercial mortgage broker has learned to anticipate what an underwriter will request to see on a loan file and have it ready. Just as with any loan type, when submitting your loan file to an underwriter on a commercial hard money transaction, anticipate any concerns that may arise, or questions that a loan file may not answer.

If necessary, be proactive and get additional documentation before it is requested. But again, resist the urge to submit more documentation than has been requested by your underwriter on a commercial hard money loan, because this may slow down underwriting. Have all of the additional documents waiting in the wings, but do not submit them unless the underwriter specifically requests them.

The best way to explain something in a file is to be prepared with a letter of explanation, which explains issues such as slowdowns in business revenues, personal circumstances that led to credit problems, or any other red flags that may arise. Get these letters in advance from your borrowers with their signatures at the bottom, and have the letters ready and waiting for when questions arise.

In addition, be proactive about identifying and addressing any title-related issues early on, even before a loan goes into underwriting. Because title issues, even transfers of title, can add days or weeks to the underwriting process, paying attention to the information on a preliminary title report can be one of the most important things that a commercial mortgage broker can do to speed up underwriting. Nothing is worse than getting a loan through underwriting just to discover something on the title that could have been managed before submitting the loan.

Be available

This is the same as with traditional loans. If your underwriter needs missing bank statements, or finds several pages missing in a lease agreement, don’t wait several days to come up with these documents. This will only add time to the underwriting process.

In addition, make sure your borrower is easily accessible for questions or conditions from the underwriter. When an underwriter has a question or condition for funding, borrowers who are away on vacation certainly won’t help speed up the loan underwriting.

• • •

Although the underwriting process in traditional lending and that of hard money lending are similar, there are some distinct differences. By paying attention to those distinctions and preparing your loan file for submission accordingly, you may get your loan funded faster.

If you choose to ignore these differences and submit your file to an underwriter on a commercial hard money transaction in the same way you’ve always done to traditional lenders, you may find that it actually slows down the underwriting process and may take longer to fund the loan. 


 


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