Hard Money Residential Loans: What You’ll Need to Get Approved

Banks give you home loans based on your credit rating. If your credit score is too low, or you run into other difficulties, you may be able to turn to other options including a hard money home loan. Banks and traditional lending institutions refuse to make these types of loans due to the risk involved. The property is held as collateral. If the borrower defaults, the property is sold for repayment. Most hard money lenders don’t want the property, but because they’re willing to take the risk, they charge you higher interest and points. If this is an avenue you want to explore, you will need the following items to ensure approval.

Detailed plan: Before you enter, create a detailed payment plan of how you plan to pay for the transaction and an approximation of how long it will take to do so. Be aware of potential interest rates and possible payment locks. Also provide proof of your credibility – if you have a background as a real estate developer, all the better! – and demonstrate the purpose of your purchase. Second, describe how the funds and any cash investments will be used. While the plans may be obvious to you, they are unknown to the lender and you should be given a detailed proposal of how the funds will be allocated. Make the plan as clear as possible to your investors.

Many hard money lenders will finance 60-70% of the after repair value (ARV) of the home; you will be responsible for financing the additional 30-40% of the additional cost. Having this cash on hand will increase your chances of being approved for the loan. Although, lenders are notorious for providing a small loan to value ratio, which means most inevitably need to look elsewhere for more support, most lenders will prefer that you have the 30-40% of the extra cost available at instead of using another loan. to finance the difference.

Remember that this is a business opportunity where you hope to persuade the lender to invest in you. Give him as many details as necessary.

Documentation: Most lenders focus on collateral value rather than your credit history; however, pack along with your documents such as W-2s, pay stubs, bank statements, and other items that show your credit history. Lenders may also request your financial history.

Financial analysis: The hard money lender will hold your property as collateral, so you will need to prove the value of your property. You may want to purchase the home for personal purposes, or your purpose may be to purchase the property to convert and flip. Either way, explain your vision for the property and give the lender an idea of ​​why he should find you. Prove the value of the neighborhood and your property in particular. Here are some questions you may want to consider: What is the price of similar properties in this area? What is the history of the market in this neighborhood? What are your growth projections? Websites like zillow.com and trulia.com can help you find this type of information.

Also, prepare a financial analysis detailing the project budget, financial projections, market trends, and equity. Show how the property you selected can ensure profitable turnover. You’ll want to demonstrate the viability of your collateral so that the lender is more willing to take the risk of lending you the money. If you don’t deliver, at least you’ll have something of value to sell.

Presentation – You are making a sales pitch. Look at your potential lender ahead of time. See what you are willing to invest in. Look at the type of loans you have given to others. Highlight these factors in your presentation. Match the aspects of your presentation to their interests. Being able to meet your needs will increase your chances of getting the loan.

The summary is..

You want to persuade the hard-earned residential lender to give you the loan. You will have to do more than just ask. You will need to be interested in your property; show him the value of your property. You’ll need to convince him that even if he doesn’t pay, he still has something of value in his pockets that he can sell for a profit. To do this, you’ll need to come up with a plan, a financial analysis, and you’ll need to create a compelling presentation.

One more thing…

Protect yourself legally: Hard money lenders can set their own rates and have few regulations to curb them. You’ll want to make sure you’re not being exploited. Have a lawyer review the condition before you sign the forms and make sure your lender reports all charges and comes with an itemized payment schedule. The Consumer Bureau stresses that you should look for a lender who is transparent and willing to answer all of your questions no matter how ‘stupid’ they may seem.

Take your time. Is your money.

Good luck with your sales pitch!