How to choose a transactional funding lender: the questions that matter

The questions, in one list

Speed is easy to claim and hard to compare, so it tells you little about a lender. The questions below are the ones that separate transactional funding lenders (also called transactional funding companies), and each is covered in more detail further down.

Ask all of them before your first deal with a new lender, ask every lender the same ones, and get the answers in writing. A lender that answers precisely on paper is one you can plan a closing around.

• What does the fee cover, and what else will appear on the settlement statement?
• Do you fund 100 percent of the A to B purchase price, and do you also fund the closing costs?
• How do you verify the end buyer’s funds, and who do you speak to?
• What happens if the B to C closing slips a day, a week, or does not happen?
• Which title companies or closing attorneys will you work with, and will you talk to mine?
• Do you lend in the state where the property is?
• How far ahead do you need the complete file, and what is your same day cut-off?
• Do you pull credit, and on whom?
• Is your proof of funds letter issued for this deal, naming this property and these parties?

What does the fee actually cover?

Start with the whole cost, not the headline percentage. Transactional funding is priced per transaction, and the market commonly quotes about 1 to 2.5 percent of the A to B price, with some published terms running higher and many adding a flat minimum on smaller deals.

The rest of the cost is where quotes diverge. Some lenders publish a separate processing fee on top of the percentage. Some state that no fee is due if the transaction does not close. Some say per diem charges may apply once the money stays out past the day. None of that shows up in a percentage, so ask for every charge by name.

• Is the fee a percentage of the A to B price, a flat amount, or the greater of the two?
• Are there processing, underwriting, document or wire fees on top?
• Is anything due before the deal closes, and is anything due if it does not close?
• Is any charge per diem, and from what hour or day does it start?
• Will your charges appear on the draft settlement statement before the closing day?

Do they fund 100 percent of the A to B price?

Ask what the wire actually covers, because "100 percent" does not mean the same thing everywhere. Some lenders’ published terms cover the purchase price, the closing costs and their own fees. Others advertise 100 percent financing without saying whether the closing costs are inside it.

The difference is cash you have to find on the day. If the lender funds the price only, you bring the A to B closing costs and the fee yourself, before the B to C leg has paid you anything. If your plan assumed nothing out of pocket, find out now, not from the settlement statement.

Ask about size limits in the same conversation. Published terms include both minimum and maximum deal sizes, and a lender whose ceiling is below your purchase price is not a lender for this deal.

• Do you fund the full contract price, or a percentage of it?
• Are the A to B closing costs included, or do I bring them?
• Is your fee deducted from the wire, paid at the B to C table, or paid by me?
• What are your minimum and maximum loan amounts?

How do they verify the end buyer’s funds?

A lender that does not ask about your end buyer is not managing the one real risk in the deal. The loan is repaid from the B to C proceeds hours later, so the end buyer’s funds are the repayment, and a careful lender wants to see them before it wires.

Methods differ. Some lenders require written confirmation from the title company that the end buyer’s cash is in its escrow account. Others ask for proof of funds from the end buyer, or for a confirmed end buyer with verified funds. Confirmation from the closing agent is the strongest of these, because it shows money sitting in the account that will close the deal rather than a statement about money somewhere else.

The lender’s answer here also protects you. If the end buyer’s money is not real, you would rather hear it from the lender’s verification two days out than from an empty escrow account on the day.

• What evidence of the end buyer’s funds do you accept: escrow confirmation, a bank letter, or their lender’s clear-to-close?
• Do you verify it yourselves, directly with the source, or rely on what I send you?
• If the end buyer is financing, do you need their lender’s clear-to-close, or is an approval enough?
• When must the end buyer’s funds be in place relative to your wire?

What happens if the B to C closing slips a day?

This is the question that matters more than the fee, so ask it first and get the answer in the loan documents. If the end buyer’s wire misses a cut-off, you own the property overnight under a loan built to last hours.

Lenders handle it in different ways. Some state that per diem charges may apply while the funds remain out. Some describe their same day program as covering only deals where both legs close the same day, and point you to a different product otherwise. Others offer extended transactional funding.

Extended transactional funding is a short-term loan that covers your purchase when the resale to the end buyer cannot happen the same day. Published terms vary: one industry description puts hold periods commonly at up to about 30 days, and another lender advertises 60 and 90 day terms and up to 180 days. The fee often increases with the length of the hold, and lenders still want a documented end buyer.

Be clear about what it becomes. Once the B to C leg is not closing on a known date, you own a property with a short-term loan against it, and the options published for that situation are the ones you would expect: pay for an extension, find a different buyer, or refinance the property. Know which of those your lender offers, and at what price, before the day.

• If B to C slips to the next business day, what do I owe, and from when?
• Do you offer extended transactional funding, for how long, and at what cost per period?
• Is an extension automatic, or does it need a new approval?
• If the end buyer walks away, is the loan due immediately, or can it convert to a bridge loan at a stated rate?

Which title companies and closing agents will they work with?

A double close runs through one closing agent handling both legs, and your lender has to trust that agent. Some lenders ask for an introduction to your title company or closing attorney so they can vet it and ask it questions. Some require one of their approved title companies above a certain deal size.

Treat that as a good sign, not an obstacle. A lender that wires into an escrow account without speaking to the agent holding it is trusting a summary. What you need to know early is whether your agent is acceptable to the lender, because changing agents a week before closing is how dates slip.

Confirm the agent’s side too. Not every title company allows double closes, so the agent has to confirm it will run both legs on the same day before anyone sets a closing date.

• Will you work with my title company or closing attorney, and what do you need from them?
• Do you require one of your approved agents, and above what deal size?
• Will you confirm the schedule and wiring instructions directly with the closing agent?

Do they lend in your state?

Ask before you sign the A to B contract, not after. Coverage varies: one lender publishes a list of 42 states, while others say only that legal and logistical considerations may apply depending on the property’s location.

State rules differ, and so do closing practices, which is part of why coverage varies. A lender that funds in your state should also know how double closes run there: which closing agents handle them, how funds are collected, and how long recording takes. If the answer is vague, ask your closing agent before you rely on it.

How fast do they need the file?

Same day funding describes the wire, not the review. The file still has to be complete before the lender can commit, and lenders publish their own timing: one states that same day proof of funds is standard for submissions received before noon.

Ask for the timeline in hours and days, measured back from your closing. A useful answer has three parts: when the lender needs the complete file, when it will confirm with the closing agent, and the latest time on the closing day it can still send a wire.

• How many business days before closing do you need a complete file?
• What is your cut-off time for a same day wire?
• What happens to my closing date if one document arrives late?
• Who do I call on the closing day, and are they reachable until the last wire goes?

Do they pull credit?

Published terms from several transactional lenders say there is no credit check and no personal financial requirement for the loan, because it is repaid from the end buyer’s funds rather than from you.

The answer still tells you something. A lender that pulls credit on a loan it expects to hold for hours may be preparing for the case where it holds longer, which is worth understanding before you sign. Ask whether it pulls credit, whether that is a soft or hard pull, and whether it happens only if the deal extends.

What replaces the credit check is paperwork about the deal and about your entity: both contracts, the end buyer’s funds, the closing agent, and formation documents and signing authority for the company that takes title.

Is the proof of funds letter tied to your deal?

A proof of funds letter is worth what a phone call to its issuer confirms. Fraud-prevention guidance for sellers and agents is to call the issuing institution using a number looked up independently, not the one printed on the letter.

So the letter you want names the property, the purchase price and your entity, and comes from a lender that will answer that call and confirm it. Some lenders issue letters within hours of receiving complete documentation for a specific deal, and that is the right model. A letter that exists before the deal does, which nobody will stand behind on the phone, tells the seller something that is not true.

• Does the letter name the property, the price and the buyer entity?
• Who will answer if the seller’s agent calls, and what will they confirm?
• Is the letter issued after you have reviewed the deal, or before?

Red flags that should end the conversation

Some answers do not need a second opinion. Any one of these is a reason to stop and find another lender.

• A fee before a deal exists. The FTC says any up-front fee a lender wants to collect before granting the loan is a cue to walk away, while noting that real lenders can charge an application or appraisal fee. In Florida, section 687.141 of the Florida Statutes bars a loan broker from assessing or collecting an advance fee, defined as consideration collected before the loan closes, and section 687.146 makes a violation a third degree felony.
• Proof of funds letters for sale. A letter sold as a product, with no deal and no funding decision behind it, has nothing a phone call can confirm.
• No named people. If you cannot learn who reviews your file, who signs the commitment and who you call when the wire is late, you cannot manage the day.
• Refusing to talk to your closing agent. The agent holds both legs, and a lender that will not speak to them is not verifying the one party that controls the closing.
• Guarantees. The FTC notes that banks and other legitimate lenders will not promise or guarantee a loan before you apply.
• Terms that exist only on a call. If the answer to what happens when B to C slips is not in writing, assume it is the worst one.

Why the cheapest fee is rarely the deciding factor

The fee is the one number you know in advance, which is why it gets too much weight. The costs that decide whether a deal makes money appear when something goes wrong, and those are set by the answers above.

Take a $200,000 A to B purchase and two illustrative quotes, not real prices. Lender one charges 1 percent, $2,000, has no written terms for a slip, and the loan is due in full if B to C does not close. Lender two charges 1.5 percent, $3,000, and its documents state what a next-day slip costs and that the loan can extend for up to 30 days at a stated fee.

On a clean day, lender one saves you $1,000. On the day the end buyer’s wire misses its cut-off, lender one leaves you owning a house against a loan that is due, and lender two leaves you with a known cost and time to finish. You only need that day once for the cheaper quote to become the expensive one.

• Lender one. Fee: 1 percent. Covers: price only. End buyer funds: your word. Slip terms: none in writing. Closing agent: no contact.
• Lender two. Fee: 1.5 percent. Covers: price and closing costs. End buyer funds: confirmed in escrow by the agent. Slip terms: written per diem and extension. Closing agent: direct contact.

What the best transactional funding lender looks like

Send the same question list to each lender, compare the written answers, and weigh them in this order: what happens when B to C slips, how the end buyer’s funds are verified, whether your closing agent is acceptable, whether they lend in your state, then the fee. The best lender for you is the one whose answers are specific, written and consistent with what its people say on the phone.

If you are double closing in Florida, Entrusted Capital is a direct lender for the A to B leg: same day funding, up to 100 percent of the purchase price, priced per transaction, no credit pulled for that leg, and a proof of funds letter on request against a real deal. Put it through the same questions as anyone else.