Hard money loans are different than most traditional types of loans and financing in a number of key ways. Whereas most traditional loans focus almost exclusively on the credit-worthiness of the borrower, hard money lenders are typically most concerned with the value of the underlying property in question. The reason for this is that hard money loans are secured by the underlying property. As a result, even borrowers with lower than average credit profiles may be eligible to receive a loan. Still, there are a number of important factors that are important for borrowers to consider when seeking to obtain a hard money loan. The single most important thing a prospective borrower can do is to make sure he or she is able to provide the lender with all relevant information about the value of the property, the purpose of the loan, and the ways in which the borrower intends to utilize the funds.
A hard money lender will want to conduct thorough underwriting on the property itself in order to try to mitigate as many risks as possible. Some loan programs will require a BPO or an appraisal of the property. Lenders will also rely on their own knowledge of the local market in assessing the value of a property. They will also want to see that borrowers have come up with a thorough and reasonable plan of action for utilizing the funds from the loan. Borrowers should come up with a plan for how they hope to renovate the property, how much they anticipate each part of the renovation to cost, and a reasonable estimation of how long they anticipate the renovation will take to complete. All of these estimations will help the lender to determine the After Repair Value (ARV) of the property, which in turn will help the lender decide how much they are willing to lend to the borrower to complete the project.
While the focus of the lender will be on the value of the underlying property and the potential profitability of the investment, lenders also consider the reliability of the borrower requesting the loan. Financial considerations will play a role in this decision, as will the borrower’s previous experience investing in real estate. Hard money loans are an excellent option for real estate investors who need funding to pursue their next fix and flip opportunity. If you are in need of funding for your next project, contact us today to find out which of our loan programs is right for you! Already have a specific property already in mind? Check out our loan application for a fast detailed response under our borrower tab by clicking here.