At the time of writing this, it's been only 3 months since Hard Money Offers launched with an aim to easily and quickly connect borrowers with hard money lenders across the country. In doing so, we've learned many things about lenders since we work with hundreds of them and process tons of loan requests every single week. We wanted to attempt to summarize and share this information because many are new to the hard money lending industry and things can seem a bit complicated and mysterious at times and it's our hope to help increase your chances of getting approved for a hard money loan.
Know your numbers
If you're not completely clear on the numbers involved in your project, investment, or home you can expect your odds at receiving financing to be slim. Borrowers are easy to forget that a lender is a business and all loan transactions are business transactions. You must be completely aware and transparent about all numbers including purchase price, current appraised value, closing costs, permit fees, renovation budgets, timelines, after-repair valuation and everything else applicable.
Don't lie or stretch the truth
You may be tempted to lie, even a little, when pitching an investment opportunity or property acquisition to a hard money lender. The better the deal is the more likely you are to secure a loan. If you stretch the numbers a bit, perhaps your LTV improves but in the end, lenders will ultimately find out everything and you would have just ended up wasting your time and theirs. Always be upfront and honest. Working with a lender is about building a professional relationship so start it off correctly.
Have a solid plan
Lending is all about risk-management. While lenders do ensure there is sufficient collateral for their loans to limit or prevent downside, they do not want to enter deals that seem likely to lead to foreclosure. While this seems like it's not a problem for a borrower to worry about, that is not the case. Lenders like to see deals with a solid, well thought out plan and timeline. Even if the loan is for personal use such as buying a house, providing bridge financing, etc, you need to treat it as a business operation. Make it clear what is needed, why, when, and most importantly, when and how the loan will be repaid.
100% financing / LTV is possible
Finding a lender willing to offer 100% financing or 100% LTV seems like a dream come true. Can you imagine being able to acquire and flip or rent investment properties without putting down any money of your own? It is possible but it is not easy and does not come available often. Most of these requests will not be fulfilled; unfortunately. To increase your chances, you need to present a bullet-proof deal with everything figured out and all questions answered. Typically, you will find that you can qualify with many hard money lenders up to 70%, 75%, 80%, 85% and up to 90% LTV / Loan-to-Cost which in most cases will exceed the actual purchase price of the property but come up slightly short over total costs to repair the property.
Bigger loans are better
Smaller loans, in the 5-figure range, are totally possible though much less likely to attract a lender's attention than larger, 6, 7 or 8 figure loans. This doesn't mean you should take out a loan larger than you need just to increase your chances of being approved. It means that potentially you can rethink the way you structure your deal. For example, don't request $25K to help pay for a down payment on a new house while you are selling your old house. Instead you could ask for a bridge loan for the entire purchase price of the new home while using the equity in your current property while it's for sale.
Lenders prefer bigger loans for a simple reason: it means more income from interest and points. Providing a loan is a lengthy process and that time and effort is best served focusing on the largest loans possible.
This continues on the premise that you need to build a trustworthy, professional relationship with your lender. Communication is of the utmost importance. If a lender reaches out to you regarding your loan request and you don't answer for a week, you shouldn't be surprised if you never hear back from them. Also, be sure to present the lender with all of the information they need and be available in case anything else is needed.
Bad credit is usually not a problem
The most frequent concern we get is regarding bad credit scores and if that will affect their ability to get a loan. It's a reasonable concern because almost all other forms of lender have strict credit requirements; sometimes above all else. Hard money lending is different. While not always the case, as long as sufficient collateral is provided, your credit score may not be a factor at all. Not all lenders are the same. Some will require a score above a certain level, but it seems that a majority do not; or they have very low requirements.
Rates and fees vary greatly
As mentioned, we work with almost 1,000 hard money lenders across the entire country. Unlike what you may be used to with more traditional lenders, such as banks, hard money lenders can vary greatly in terms of rates and fees. On top of that, the criteria of your loan may also influence the rates and fees offered. It's a common principle that the more risky the deal is for the lender, the higher these costs will be. It's important to shop around and hear as many offers as you can get.