What Does It Take To Get A Hard Money Loan?
Posted on: 21 June 2022
Are you looking to get a hard money loan for an investment property, but you are wondering what lenders look for in order to approve you for the money you need? It will help to know what is considered during the approval process.
The Equity In The Property
What makes a hard money lender different from a traditional bank is that they do not look at the typical factors that qualify you for a loan, such as your credit score, debt-to-income ratio, and your income. Hard money lenders will focus on the equity in the property that you are purchasing and the potential profit that can be made in the end.
For example, if you need money to flip a home, the lender is going to look at several factors about the property itself. They'll consider the purchase price of the home, the repairs that need to be made, and the potential sale price when everything is finished. If they do not feel like you are going to be profitable in the investment, then it will be considered too big of a risk and you will not receive the money you need.
Had money lenders focus on hard assets involved in the deal since the security of the loan is based on the property that you are buying. If you were to default on the loan for any reason, the hard money lender would be taking back that property and could be stuck with a hard asset that they will lose money on.
The Down Payment
Traditional mortgages will typically require you to provide some sort of down payment in order to get the loan. There is also a focus on the minimum down payment that is required. Hard money lenders do not necessarily have a requirement about the down payment, but it can say a lot about you as an investor.
A larger down payment means that you are taking on more of a risk. For instance, If you are willing to provide a 50% down payment, this means that you are showing the lender that you are just as invested in this deal as they are. This can also help the lender trust you if they've never worked with you before. In addition, a large down payment will lead to paying less interest on the loan, which is important to think about due to hard money loans having a higher interest rate because there is more of a risk to the lender.
Find a hard money lender near you to learn more.
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