Ways to Secure a Gap Loan & How to Do It
For your lender to feel comfortable, you need to know the ways to secure a gap loan.
When you hear the advice to “secure” your gap loan, what does that mean? How do you secure a gap loan? And why?
Ways to Secure a Gap Loan with Two Lenders
Securing your loan involves both your hard money lender and your gap lender.
Your friend or family member is giving you a fairly large chunk of money. They’ll want to know how you’ll secure it for them.
Securing your gap lender’s loan involves putting a lien on the property. Does your hard money lender allow this? Not all lenders will.
If Your Hard Money Lender Doesn’t Allow a Lien
If your hard money lender does not allow a lien on the property, you’ll have to secure the loan with a different property.
You could either put the lien on your own home, or you could use another rental or investment property.
If They Do Allow a Lien
If your hard money lender does allow a lien on the property to secure a gap loan, it’s best to do during closing with the mortgage and deed. This way title records it, and you have evidence for your gap funder that it’s recorded.
Many gap lenders – especially if they’re family or friends – won’t be educated enough about the real estate world to understand how to secure their money. As the investor, it’s your responsibility to keep your lenders’ money safe.
Securing the Gap Loan
No matter which property has the lien, you’ll have to take a few important steps to secure the gap loan.
You’ll need a note – a promissory note between you and your gap lender – and a lien, either a mortgage or a deed of trust. And you’ll have to record all this with the county.
To make sure the loan is concerned, be sure to check all these boxes. It’s important to do this thoroughly so your lender will:
- Get their money back
- Feel comfortable with the deal
- Want to lend to you again
- Recommend you to their network
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