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What are the Basic Hard Money Loan Requirements?

September 3, 2020 by in Hard Money Loan, Tips

Fix-and-flip homes are becoming more popular every year. Over 6.2% of all home sales were from fix-and-flip homes in 2019. With this trend, traditional bank lending is long, while requirements for hard cash loans are not as demanding. If you are interested in a hard money loan, read on to learn more about the requirements for a hard money loan.

What Is a Hard Money Loan in Real Estate?

A hard money loan is a 1-3 year loan that you can get from hard money lenders, not banks. If you plan to pay it off quickly, it is worth getting one, and you have many options. If the borrower cannot pay, the lender takes the property as payment.

Lenders fund hard money loans within a week. Conventional bank loans typically take 30 to 45 days. Hard cash loans are excellent for certain situations such as real estate, land loans, and building loans. If a conventional bank is not a choice and borrowing cash is difficult, hard lending is the ideal solution.

The 3 Hard Money Loan Requirements To Meet

Equity/Down Payment

If you have invested a lot in a property, the lender will see that your property poses a low risk. A lender may also let a borrower use several properties to secure one loan. The minimum down payment for residential properties usually varies from 25% to 30%.

Financial Strength

The more cash savings the borrower has, the more likely they qualify for a hard money loan. This because the costs can include such items as HOA fees, taxation, and insurance. In certain situations, the lender will raise the value of the debt and keep back any of the borrower’s funds to finance the cost of the loan.

Real Estate Experience

Lenders want to see if the borrower can repay the loan. If the borrower has no previous real estate experience, the lender will ask for more information on the project including an exit plan for the property.

What About Hard Money Loan Rates?

The best hard money lenders have competitive rates. Make sure you have a contract with a trustworthy lender before signing for a hard money loan. Interest rates usually differ from 10 % and 15%, based on the lender and its potential risk.

How to Find the Right Lender

It is easy to find the right hard- money lender with some research. Ask a few questions to your potential lender to decide if you found the right one: Do you check personal credit? What credit score are you looking for? Is interest calculated by week, upfront, or at the end of the loan? How long have you been lending?

Although hard money loans have certain requirements, they are not as strict as for conventional bank loans. Some hard cash lenders can operate in ways conventional banks do not. Speak to the lender about future agreements if you do not follow the criteria of the hard money loan. Hard money lenders are more willing to work things out with borrowers than standard banks.

Contact Pinetree Financial Real Estate Group in Denver to learn more about hard money loans and get started on the application process.

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