How It Works

More information about the process

Before starting to prepare loan documents, several basic questions need to be answered: Should a long form, short form or customized deed of trust be prepared? What type of note should be used for the loan? Once the basic questions are answered about the types of loan documents to be prepared, then a complete list of facts needs to be gathered.

To streamline the preparation and reduce delays, phone calls and other follow-up steps, up-front preparation is essential. The information required to prepare loan documents will need to be adjusted based on the loan type (purchase, refinance, development, construction, etc.). However, I recommend that a checklist of items, similar to the following, be used to ensure that the necessary information is gathered:

  • Borrower’s name (whether individual, corporate or other) including vesting, title of signor, address, phone, fax, income, asset liabilities, schedule of assets, completed 1003 or similar application
  • Borrower’s personal guarantee—yes or no
  • Borrower’s down payment or cash-in (if applicable)
  • Seller’s carry amount (if applicable)
  • Address, APN and legal description of the subject property
  • Other collateral: cross collateralized property address, APN and legal description
  • Collateral owner-occupied—yes or no
  • Loan amount must be greater than $30,000.00
  • Date of loan documents
  • Market value of subject property
  • Appraiser’s name, address and date of appraisal (if applicable)
  • Physical inspection and possible survey of property required in addition to appraisal (market approach, value approach, income approach).
  • Market approach: property’s value will be determined heavily by what it sold for in the preceding 18 month period if applicable.
  • Personal property CANNOT be collateralized.
  • Loan-to-Value of all liens senior plus new lien CANNOT exceed 65% for a single family home and 50% for land. No construction loans.
  • Loan term
  • Lien position
  • Interest rate
  • Late charge percentage or fee
  • Prepayment penalty triggering percentage and amount
  • Possible clauses: Acceleration, Due on Sale, Timber, Partial Reconveyance, and many more.
  • How will you repay this loan? Qualification is based on several factors: income, rental income, sale of property, refinance.
  • Payment terms: fully amortized, partially amortized or interest-only
  • Payment frequency: monthly, quarterly, etc.
  • Due date of payments. 2 months of missed payments or missed balloon payment (after 30 days) triggers Notice of Default.
  • “Request for Notice of Default” and/or “Request for Notice of Delinquency” of senior lien(s). Investor should have 6-12 months of funds to cover default of senior liens.
  • “Statement of Condition” and supporting documents of any senior loan are required.
  • Senior loan due date must be no less than 12 months AFTER the due date of new loan.
  • No loans will be made junior to a HELOC or any other type of loan that has the ability to grow.
  • Approximate payment due date
  • Amount of payments
  • Balloon payment—yes or no—and amount
  • Due date of balloon payment
  • Subordination provision—yes or no
  • Escrow company’s address, phone, contact and escrow number
  • Title company’s address, phone, contact and title number
  • ALTA policy required
  • Fire and hazard policy must be prepayed for a minimum of 12 months after the close of escrow. Lender will be added to policy as loss payee.
  • Investor funds ALWAYS made payable to title company… NOT broker.
  • Anticipated due date
  • Estimated closing costs
  • Loan servicing provisions—yes or no (if yes, name, address, phone and contact, fee amounts and payment frequency)
  • Lender’s name (individual or company) including vesting, title of signor, address, phone and fax
  • Listing of other liens on property, lien priority, amount, beneficiary, interest rate, original loan amount, approximate principal balance, monthly payment, maturity date, balloon payment, balloon amount, late payments, judgments, foreclosure status, etc. (if applicable)
  • Good faith estimate information: a) items payable in connection with loan (lender origination fees, broker origination fees, processing fee, underwriting fee, wire transfer fees, etc.); b) items required by lenders to be paid bt borrower in advance (interest, hazard insurance, etc.); c) reserves deposited with lender (mortgage insurance, county property taxes, etc.); d) title charges (escrow fee, notary fee, title insurance, etc.); e) government recording and transfer charges (recording fees, tax/stamps, etc.); f) additional settlement charges (pest inspection, flood certificate, etc.)
  • Broker’s name, license number, address, phone
  • Trustee’s name and address (if applicable)
  • Other documents required: lease rental agreement if any, proof of purchase price, other recent appraisals, existing inspection reports.
  • Schedule of use of fund