October 17, 2019
In parts 1 and 2 of our origination series, we discussed how to begin the origination process and underwriting. Now, we’re onto the final steps of the process of acquiring a hard money loan: closing.
For house flippers ready to begin, closing on a loan may seem like the time to celebrate. However, it’s important to remember these crucial steps that you must take during the closing process.
Closing Process Documents
You will need a certain documents for the closing process. A few of the most important documents include:
- The promissory note, a written agreement to pay an agreed-upon amount.
- Deed of Trust or Mortgage, a document you sign and file with the county showing that a loan is currently out on the property
- Closing statement/HUD, an itemized list of all the costs to the buyer and seller.
Note lender requirements will vary by state due to different laws.
The Closing Process
Step 1: Requesting Property Title Insurance: It may surprise you to learn that closing actually begins at the beginning of the hard money loan process. Here, the underwriter, seller, or buyer reaches out to the title company and requests to open a file. By opening a file, the title company starts to research what liens, if any, currently relate to the property. The lender is in effect preparing the property title to change hands from buyer to seller.
Step 2: Having the Proper Loan Documents in Place: During the closing process, we will require you to have the proper property insurance in place. Even house flippers who do not intend to live in the home they are purchasing will need a policy. This is because if a property becomes incurs damage, you’ll need the ability to file a claim to recover losses. Borrowers need to acquire insurance in advance. This is so they can present documentation of their insurance to their lender or closing can pay for it.
Step 2: Clear Title Issues and Prepare Loan Documents: While closing on a property, it is often necessary to clear title issues. These issues vary in complexity, but a good team can help simplify this process and help navigate potential roadblocks. Such issues can include unknown liens or errors in public records. You will need to prepare several loan documents as well. Typically, these include:
- Mortgage or Deed of Trust
- Promissory Note
- Guarantee
Step 4: Close and Fund: On the closing day, a HUD is prepared. The HUD is essentially a closing statement indicating how much the borrower owes the seller, how much money the buyer has to bring to closing, and any earnest money. The HUD also prorates taxes. Once all parties sign the necessary documents, the hard money lender will send funding to the title company. The title company will disburse all funds to all appropriate parties as laid out on the closing statement and will, in turn, send the deed or mortgage and other documents to the county for recording. Also as part of the closing the title company will issue the title insurance policy, thus insuring the lender has a first lien on the property.
Understanding Title Insurance
What is title insurance and why does it matter? Out of many title issues that may arise, one of the most common revolves around liens. A lien is a claim that another individual or entity has on a property in your possession. Typically, liens are identified during the underwriting process by performing a title search and dealt with by the seller and title company. In order for the lender to have a first lien all previous liens need to be satisfied before closing can occur.
Once the title company can provide clear title (no liens) they will issue a title insurance policy to the lender guaranteeing the lender has a first lien on the property. If, in the future, the lender’s first lien is disputed by another party the title insurance company will be obligated to reimburse the lender for any financial harm that may arise due to the title dispute.
How BMC Can Help You
BMC is committed to helping you every step of the way in the hard money loan process. When you’re looking for someone to help you acquire the money you need, you can rely on us to be a trusted partner. We will let you know what is happening throughout the process, be transparent every step of the way, and provide you the protection you need as a home buyer.
If you’re looking for a hard money loan or would like to learn more about our process, contact us today.
About Bay Mountain Capital:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans. We specialize in financing all types of residential and commercial property investments throughout Texas and Georgia. Using common sense and value-added approach, we strive to incorporate these principles into our underwriting and closing processes.
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving a complete file and clear title. The process generally takes two weeks for a residential loan but can be accelerated where circumstances require it.
We are primarily an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.