After taking surveys of over 3000 Mortgage Brokers, Realtors and Real Estate Investors, we have tallied the survey and comprised a list of the Top 10 Reasons that Hard Money Loans don’t close.
1. Many Real Estate professionals (brokers and realtors) don’t understand the programs that are available to them, therefore working on loans that just don’t fit in any programs.
2. Many of these loans are sold to the prospective borrowers as “no credit check” loans. While credit scores are not a major decision in making the loan, just about every lender wants to know who there lending to. Another reason that credit reports are requested is to see if the borrower has any judgments or liens that would adversely affect title. Wouldn’t you want to know if the borrower has an issue that could be addressed from day 1 rather than work on the whole loan, and get to days before closing and you have a major title issue that can not be cleared or that kills the deal?
3. Having borrowers believe that hard money is a true 100% program – all deals need skin in the game (even as little as just closing costs in some cases). No money = No deal 99.99999999% of the time. This is not a get rich game. This is real estate investing.
4. Borrowers conveniently forget “details” and think lenders won’t ferret them out
5. Not structuring a deal correctly – we see so many deals that need to be restructured. A solid detailed executive summary and a fully completed 1003 or personal financial statement are so vital to telling the lender the full story on a loan request.
6. Mass emailing the loan request to EVERYONE you find on the internet. Hard Money is such a small street, lenders talk, and they know the shopped deals. Even worse, you send the deal to 2 lenders that both want to do it, they both do the work on the deal, and you drop one at the last minute to go to the other for funding. What do you think that lender will think the next time you send him a deal?
7. Up front processing fees. Really? I can’t imagine the need to pay anyone to process a loan just to collect documents to email them to a mailing list.
8. Excessive broker points or large broker chains adding point after point on a deal. We tallied up the last 200 closed loans with broker points on them, and the average broker points on closed deals came to an astounding 1.75 points per closed loan! Does that tell you something? (note smaller loans <100k averaged 3.5 broker points).
9. Lack of knowledge about the loan process, and telling clients they can all close in 5 days. If title takes 2-3 days in many cases, or even longer sometimes , a day or 2 for the lender to review the file, a few days to gather missing docs and then setting up the closing were at 10 days. If you set expectaions to this you will have a lot more happy clients.
10. Last but not least, the 3 day scramble. How many deals have you shopped and now there are 3 days left on the contract, no more extensions available and your in a frenzy? Find a lender, learn his programs, and sell those programs to manage borrowers expectations.