5 Hard Money Lending Factors We Consider

The five most important factors that a hard money lender will look at when deciding to give you a loan are the property details, the value, how much cash you have, your experience level, and your exit strategy. It’s important to know these factors in order to get approved for a hard money loan!

What’s a Hard Money Loan?

Hard money loans are a type of financing that is used to purchase real estate investments, or to meet short term loan needs. These loans are primarily asset based loans which means that loan approval is not contingent on a borrower’s credit score like traditional loans.

Unlike a conventional loan or other loan products, a hard money loan comes from private investors. Hard money loan rates might be at a higher interest rate than traditional loans, but they offer advantages to those that know how to use them correctly. Hard money loans can be a real estate investor’s best friend because they help to increase wealth faster.

The property details we need for a hard money loan

The location of the investment property is important when applying for a hard money loan. Is the property in a prime area, in the suburbs, or in a rural location? Some lenders will not lend on properties in rural locations or in cities that do not meet a minimum population size.

What other property details is a lender looking for? The property description. What is the property types? Is it land, residential, or commercial. If it’s a house, provide the square footage, the number of bedrooms, bathrooms, the lot size, the number of garage spaces, and the year built. If you’re renovating the property, what changes will be made to the current layout?

Real estate investors should have all the above information when looking for hard money loans. Make sure to find out if the property description will fit the the hard money lender’s criteria.

How much cash can you bring in?

A hard money lender will also look at how much cash you have to bring in as a down payment on the purchase of a property. This is known as the loan to value ratio. Hard money lenders will usually loan money to someone who can bring in a down payment that is at least 10-20% of the value, or 10-20% of the purchase price.

Real Estate Investing Experience

The lender will also look at how much experience you have and your track record with managing real estate. You need to be able to demonstrate that you know what you’re doing or that you have a qualified team in place to help you.

If you’re looking for funding on a fix and flip property, hard money lenders will also ask about your past performance in house flipping. Do you have a history of rehabbing the homes and reselling them?

Some lenders will offer lower interest rates if you are experienced in house flipping. Private lenders want to be sure they can get their loans repaid without hassle. The more experience, the better.

Property Value

Hard money lenders also look at the property value and how it compares to the total purchase price. It’s important for a hard money lender to know if you’re going to be able to make a profit on this investment property.

The market value of any investment property is determined by comparing its size, age, location, condition, and features with the prices of other properties in the same area. Here are some things to keep in mind as well:

How much does this investment property sell for? What is the cost per square foot? If this is a fix and flip, what will (ARV) after repair value?

What’s your Exit Strategy and plan for paying back the hard money loan?

A hard money lender will ask you how long you need the loan for, and how you plan to pay the hard money loan back.

What does your plan look like if the value of the house goes down, if it needs more work than expected, or if your tenant loses their job? What happens if one of these circumstances happen after you’ve already bought the property?

Remember that hard money loans are short term loans with higher interest rates than traditional bank loans. These loans can get costly if things don’t go as planned.

Conclusion

These are the five main factors to consider if you’re looking for an easy way to get a hard money loan. These hard money lenders work differently from a traditional bank and you need to know the basics of how these loans are different.

All of the factors can affect the average interest rate and loan amount. Hard money lenders expect their money to be paid back in certain amount of time. The interest rates might be higher than a personal loan or traditional mortgages, but most of the time the credit score is irrelevant. Now that you know all of these things it will be easier for you to get approved for a hard money loan.

Hard money lenders can fund much quicker than a traditional lender. Especially big companies like Rocket Mortgage, they can take forever to fund a loan!

We recommend that you talk with someone from our team about how we can help. If you aren’t ready yet, check out some videos we’ve made for you to help answer some of your additional questions.

We tailor our hard money loans to meet your investment goals and will work with you every step of the way. Our expert staff is here to help you succeed in real estate investing, so don’t hesitate to contact us if you have any questions or concerns. Remember, hard money doesn’t need to be hard!

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About the author

Corey Curwick Dutton, MBA Park City, Utah - 2005 MBA Graduate with 10 years experience in Business Management including International Management. Corey is a Private Money Lender and Loan Officer. In her spare time Corey enjoys writing on topics in the private money lending industry. She also enjoys hobbies such as mountain biking and skiing in the great outdoors of Utah.