Private Money Loans: Lender Guidelines and Underwriting Conditions List
The purpose of the here-in article is to outline Universal Commercial Capital lending guidelines and summarize what documents are needed so our processing team can underwrite a private money borrowing. Also known as “hard money loan”, our private money loan program is a short- term business purpose lending secured by the value of a real estate asset. The program guidelines are specifically designed to provide timely funding to entrepreneurs in need of quick financing and to Borrowers that do not qualify for a business loan with a bank.
Often, conventional Lenders’ approval criterion for a business loan are tough to be met, especially for applicants that have less than perfect credit score, no prior experience or for those missing some of the required paperwork. On the opposite, the approval guidelines for private loans are eased to fit the needs and resources of the applicant. While banks review and consider the Borrower’s credibility/ business experience, private Lenders as UCC evaluate the value of the collateral and the monthly income the real estate asset is generating (if the subject property is rented out).
It is important to understand that private Lenders tend to be conservative about the loan-to-value ratio. The very maximum LTV a Lender will consider for properties in California is 70%, however, if 60% – 65% LTV is requested a better interest rate may be valid. To qualify for a private money loan, Lenders request a minimum FICO of 620 and the term of the loan can be anywhere from 6 to 36 months with minimum loan amount being $75,000 while maximum is set at $500,000. Depending on the loan amount and term chosen the interest rate offered is between 8.99% and 11%.
The Borrower is required to make monthly “interest only” payments during the term period and the full amount of the obligation has to be paid back by its maturity date. The real estate property used to secure the loan can be owner-occupied or non-owner occupied, the proceeds of the loan can be used for the purchase of a listed property, refinance of an existing mortgage or utilized for other business purposes. Additionally, both first and second mortgage applications are accepted. Our underwriting procedure is simplified to achieve timely closing of the deal while full due diligence is executed.
Below is a list of items needed for each step of the process. Additionally, Lender will want to know how the Borrower plans to repay the loan; therefore, a solid exit strategy should be presented.
- Application. To consider an application, our Sales team will need to receive the following submission package:
- Form 1003 – completed and signed;
- Mortgage Statements (if applicable);
- Purchase Agreement (if applicable);
- Property Profile;
- Borrower’s Credit Report;
- Borrower’s Valid ID; SS Card
- Property Appraisal Report (only if available, otherwise it is not required)
In 24 to 48 hours, the applicant will receive a response. If the loan request is pre-approved, Universal Commercial Capital will issue a Letter of Interest (LOI) with offer details/loan terms and conditions. The form needs to be reviewed and signed by both: a Broker (if such is involved) and the Borrower.
2. Conditions lists. Along with the loan offer, a list of additional documents and disclosures will be sent to the Borrower. Most commonly, the below verifications are asked for:
- Rent Roll and Lease Agreements (if property is occupied);
- Business Bank Account
- Business License
- LLC Documents of Incorporation (if application under LLC)
- Trust Documents (if applicable)
- General Disclosures (issued by UCC, completed and signed by the Borrower)
- Brokers License and Information on Broker Fees
- Property Insurance – under Lender’s name. Policy needs to be for at least 6 months.
If there are any liens or judgments on the subject property, the processing team will work closely with a title officer to ensure pay off demand is requested and the property title is cleared. Once the submission package is completed, a loan documents package is prepared and a notary appointment is scheduled at the convenience of the Borrower. If the Borrower does not speak English, UCC should be notified well in advance.