Pre-approval letter from a hard money lender, explained

A pre-approval letter from a hard money lender is a short, signed letter in which the lender, having reviewed the buyer and, on the strongest version, the specific deal, states that it is able to close the loan as long as stated conditions are met. You attach it to an offer so the seller and the listing agent can see that a real lender has looked at you and is prepared to fund.

If you searched for a proof of funds letter, this is what the seller and the listing agent really want: a lender's pre-approval letter stating it can close, subject to conditions. The rest of this guide is about that letter.

Here is what it says, what the conditions mean, how a listing agent reads it, how it differs from a vague pre-qualification, and why a letter tied to the deal you are bidding on is the one that wins.

What a pre-approval letter is, and what it is not

The seller is asking one question when they look at your offer: will this buyer actually close? A buyer using a lender answers it with a letter from that lender.

So a hard money pre-approval letter is:

• A statement that the lender can close. Not a hope, not an estimate. The lender is saying that if the listed conditions are met, the loan funds.
• Evidence of a review. Someone with money to lend has looked at the buyer before the offer went in.
• Something an agent can check. A real letter carries a name, a date, a reference and a way to reach the lender.

And it is not:

• An unconditional promise. Every honest letter names its conditions, and every listing agent expects to see them.
• An appraisal. The valuation is one of the conditions, not something the letter has already settled.
• A substitute for your own money. If the deal needs cash from you for closing costs, carry or reserves, the letter does not cover that. You may be asked for bank statements showing your funds for closing as well.

What the conditions mean

The conditions are the heart of the letter. A buyer who understands them knows exactly what stands between an accepted offer and a closed loan.

Valuation

The lender needs an independent view of what the property is worth, both today and, on a rehab, once the work is done. If the valuation supports the price and the plan, this condition is met. If it comes in well short, the deal has to be looked at again.

Title

The title has to be clear enough to insure. Old liens, unpaid taxes, open permits and judgments against the seller are found here. Most can be cleared at closing. Some take time, which is why closing dates on hard money are always subject to title.

Insurance

The property needs a policy in place that names the lender, usually a builder's risk or vacant property policy on a rehab. This is rarely a problem, but it has to be bound before funding.

LLC documents

Every loan I make closes in an LLC, and only on investment property. The condition is the paperwork: articles of organization, the operating agreement, an EIN and good standing. If the entity on your contract does not exist yet, form it now rather than in closing week.

Final review

The lender confirms that nothing material has changed since the pre-approval: same property, same price, same scope, same buyer. It is the last check before documents are signed.

None of these conditions is a trick. They are the things any lender has to confirm before money moves, written down in advance so nobody is surprised.

How a listing agent reads it

A listing agent reads these letters in seconds, usually while comparing several offers. What they look for:

• The buyer and the entity. The letter should name you and the LLC that will take title. If the contract says 123 Main Holdings LLC and the letter names only you, a careful agent notices.
• The property. A letter naming the address on the offer shows the lender knew which house you were bidding on.
• An amount that fits the offer. A figure far above the offer tells the seller you have room to come up.
• A recent date. An old letter suggests the buyer has been shopping around for a while, or that nobody has checked anything recently.
• Plain conditions. Agents trust a letter that names its conditions. One that promises to fund anything, unconditionally, on a house nobody has seen, reads as a template.
• A lender who answers the phone. An agent choosing between two offers may call. If nobody picks up, or the person who does has never heard of you, your offer drops to the bottom.

The agent is also reading the whole offer, not just the letter. A clear letter attached to a sensible price, a realistic closing date and a buyer entity that matches the contract reads as a buyer who knows what they are doing.

Pre-approved vs pre-qualified

These two words get used as if they meant the same thing. They do not.

A pre-qualification is a starting point. A pre-approval is a lender putting its name to closing.

Why a letter tied to a specific deal is strongest

A general letter says a lender is willing to lend to you, up to an amount. It says nothing about whether this house, at this price, with this rehab budget, will get funded. That is the question the seller actually cares about.

A deal-specific letter answers it. The lender has seen the address, the price, the scope and what the property is worth finished, and is saying it can close on that deal, subject to conditions.

An illustrative example, with round numbers. Say you are writing on a house at $200,000 with $50,000 of rehab. A general letter saying you are pre-approved up to $300,000 tells the agent you can borrow. A letter naming that address, backed by a review of that price and that budget, tells the agent the lender has seen this house. The second buyer is the one the agent calls back.

There is a benefit to you as well. You bid knowing your own number, rather than guessing at how much of the purchase someone else will fund.

How the pre-approval process works

This is how I do it, start to finish.

1. Send the deal. Through pre-approval you send the address, the purchase price, the rehab budget and what the property will be worth finished. There is no credit pull at this stage.
2. I review you and the deal. I look at the numbers, the property and your experience, and whether the exit makes sense.
3. You get a written answer. Inside 24 to 48 hours of a complete file you get, in writing, what I would lend, the structure and the conditions to close.
4. You get a pre-approval letter for your offer. It states that I can close, subject to those conditions: valuation, title, insurance, LLC documents and a final review.
5. After the offer is accepted. You get the term sheet and we move to closing.

The practical move is to start before you need it. If you are actively looking, send a deal now, so the letter is a formality on the day the right house comes up.

Before you send the deal

Make sure the offer itself is right before you get anywhere near a lender. Work out your maximum allowable offer and run it through the fix and flip calculator. A letter attached to an offer that does not work only helps you win a deal you should have lost.

The things that sink a deal after the offer are the same things a good review catches before it: an after repair value the comparables do not support, a rehab budget written to make the numbers work, or no credible exit. If you underwrite the deal yourself first, none of them will surprise you.

Can you use a hard money pre-approval letter on an MLS offer?

Usually, yes. Listing agents commonly ask for a lender letter with an investor offer, and a letter from the lender actually funding your purchase answers the request directly.

What the letter does not decide is how your offer is written. Investors using hard money sometimes write offers with short timelines or limited financing contingencies to compete with cash. That changes what happens to your deposit if the loan does not close, and the letter's conditions do not protect you from it. The guide on waiving a financing contingency walks through that choice. Talk to your agent and, where it matters, a real estate attorney before you waive anything.

What happens after the offer is accepted

The letter has done its job once the contract is signed. From there, the loan runs on the property and the conditions.

On a fix and flip loan that means the valuation, title work, insurance, your LLC documents and a written term sheet. Purchase and rehab can be covered in one facility, with the rehab released in draws against completed work. From a complete file I issue a written term sheet in 24 to 48 hours, and closing typically takes 5 to 10 days subject to title. The closing timeline guide covers what happens on each of those days and what slows it down.

Because the conditions were written down at pre-approval, closing is mostly a matter of ticking them off rather than discovering them.

A short checklist before you attach the letter

• The buyer and LLC on the letter match the buyer on the contract.
• The letter names the property, if it is for a specific offer.
• The amount fits the offer, not your maximum.
• The letter is dated recently.
• The conditions are written out plainly.
• The lender contact on the letter will pick up the phone.
• You can show bank statements with your funds for closing if the seller's side asks.

Get pre-approved on the deal

If you are about to write an offer on an investment property in New Jersey, Pennsylvania, New York or Texas, send me the numbers. I will review you and the deal and come back in writing inside 24 to 48 hours of a complete file with what I would lend and the conditions to close. Get pre-approved on the deal before you make the offer.