How To Get a Loan

How to Apply and Qualify for a Hard Money Loan

Real estate investors need money to finance their projects. Whether you’re building a property or flipping one, you will need a loan to finance everything. While you could go to a bank and request traditional financing, is this the best option?

A hard money loan may be the best financing option for your real estate endeavors. But what are the requirements for hard money loan options? If you’re wondering how to get a hard money loan, we have the answers you need. 

What Is a Hard Money Loan?

This type of loan is backed by real property or a tangible asset and is not the same as a traditional mortgage loan.

It is not the individual’s creditworthiness or stellar payment history that attracts the lender. It’s all about the value of the property. 

These lenders have fewer conditions for a hard money loan because they are private lenders, not traditional lenders, and can set their terms as they please. This makes hard funding easier to get than traditional bank loans.

What Should You Know About Hard Money Lenders?

If you want to obtain a hard money loan, you won’t find options at your local bank or with traditional lenders. Ask about a hard loan at a bank, and they will send you on your way. 

These lenders are in a different class. Often, most hard money lenders are either private investors or companies focused directly on hard money loans rather than traditional mortgage loan.

What Are the Requirements of Hard Money Loans?

Are you a house flipper? If you love purchasing properties, rehabbing them, and selling them for a high profit, you know the importance of having cash on hand.

Fix and flip properties rarely stay on the market long enough for an investor to secure a traditional loan. To ensure you have funds, you need to learn about hard money loan qualifications.

Hard Money Loan Requirements

Hard money loan requirements may seem intimidating, especially if you’ve only dealt with traditional loans in the past. The good news is that lenders are looking at the property more than the borrower. The lender wants to see an attractive business proposal when considering hard money loans.

If the property has a strong after-repair value (ARV), you will likely get approval for your loans, even if your credit score is poor or you have past payment issues on your record. 

Hard Money Loan Requirements Vary

Because hard money lenders are private, you don’t have to worry about the requirements being set in stone like you would with a traditional loan. Lenders are often willing to work with borrowers as long as the property is attractive. 

These hard money lenders will work with you in ways a traditional bank never would or could. If you want this type of loan and have a valuable property and a solid exit strategy in mind, you can get approved. 

Finding the Right Hard Money Lenders

Before even thinking about applying for a loan, you need to find the right lender. As a real estate investor, you need financing you can rely on. 

You need a lender that will form a solid relationship with you for future projects. The first step in this process is asking the right questions. 

Some people are unsure about how to get a hard money loan with bad credit, how to qualify for a hard money loan, the requirements for hard money loans, etc. Asking specific questions is an important step.

Ask the Right Questions

Finding the best financing means doing your homework, and you need to learn as much as possible about your choices to decide effectively. To discover the right financing for your needs, ask the following questions. 

  • Are you a true lender or a broker?
  • What are the requirements for a hard money loan?
  • What details will I need to provide to get pre-approval?
  • Will you check my credit score?
  • If so, what are your credit score requirements?
  • How long have you been a lender?
  • What is the timeframe for the process from start to finish?
  • Have you worked with fix and flip investors with multiple properties?

Keep Important Questions With You

Make sure you write these questions down before contacting a financer to get a hard money loan. Having these questions on hand will ensure you don’t forget them in your haste to get hard money loan information. 

EXAMPLE LOAN SCENARIOS

single family home just renovated
Rehab
Charlotte
Single Fam
$123,000
8.25%
47 Days 
residential home being renovated
Fix and Flip
Austin, TX
Residential
$276,538
8.5%
69 Days
new residential home being built
Construct
Akron, OH
Residential
$303,965
7.75%
39 Days

How to Apply/Qualify for a Hard Money Loan

We want you to know how to apply for a hard money loan. Knowing the steps should allow you to stay committed to the process and ensure you are fully prepared.

1. Save Your Down Payment

Although some of the best hard money lenders offer 100% loans without a down payment prerequisite, you will likely need to put up some of your own cash. Down payment requirements for most hard money loans are often higher than traditional mortgages and private loans. 

The down payment for a hard money loan will be calculated by subtracting the percentage of the ARV from the purchase price.

The average down payment is around 30%, but hard money lender requirements can vary greatly for different projects. 

Ensuring you have the cash reserves for a down payment before applying helps prepare you for approval.

2. Consider Setting Up an LLC

Although not always a requirement, many hard money lenders will only lend to LLCs. Setting up an LLC is integral for protecting your personal finances.

3. Find Your Hard Money Loan Lender

Knowing what to look for in a lender is essential for choosing wisely. Remember, you will likely need the lender’s help throughout your career as a real estate investor.

The following are some tips for choosing a hard money lender. 

  • First, you need to know your needs for real estate investing.
  • Make sure the financing is transparent from beginning to end. 
  • Ensure you are working with a reputable lender or broker.
  • Make sure the financing can work within your timeframe needs. Ask about short-term loan and long-term loan financing options.

4. Get Proof of Income

While some lenders are stricter than others, some will want to see proof of income.

Hard money loans are not secured by any of your personal assets or income, but a reputable lender usually wants to verify the borrower’s ability to make payments on the real estate investment property. 

 

CHECK FUNDING IN YOUR STATE

 

5. Prepare Your Repayment Strategy

Because hard money loans are short-term, you will likely need to repay your loan within 12 months, though this time varies among lenders and loans. You will need an exit strategy before even applying. 

The exit strategy goal of all real estate investors is to rehab and sell the property before the loan period ends. If you cannot sell the property quickly, having a repayment strategy will keep you on track with your payments. 

6. Apply for Your Loan

Finally, you will need to fill out an application. Each lender has its own conditions, but you will find the process is much easier and shorter than that of a traditional bank. 

Most lenders have a simple and straightforward application process. Depending on the lender, they may ask about your credit history and have varying loan terms.

Review the Loan Paperwork Carefully

Before signing the paperwork, you must review it carefully. Make sure the following are covered in the paperwork and written out explicitly. 

  • Make sure all loan fees are disclosed, including closing costs, property insurance, the loan amount, interest rates, underwriting expenses, monthly payments, etc.
  • Ensure the paperwork clarifies how much of the monthly payment is applied to the interest amount.
  • Double-check the interest rate conditions. During the loan application process, the interest rate can change depending on the real estate market and loan amount, meaning you may end up with higher interest rates.
  • Make sure the repayment schedule is included in the paperwork.

8. Consider Hiring a Lawyer

Some borrowers have their lawyers review the paperwork before they sign. As in all business dealings, this is never a bad idea. Give yourself peace of mind during the approval process if you are concerned about the loan contract. 

9. Talk to Your Hard Money Lender

If you have any concerns or questions, ask the lender before you sign. The pre-contract period is the time to ask for and obtain clarification. The more you know, the better equipped you will be to decide if hard money loans are right for your needs or if you have chosen the best lender. 

 

MORE EXAMPLE LOAN SCENARIOS

residential property being fixed to sell
Fix and Flip
Pittsburgh
Residential
$91,589
8.125%
43 Days
residential home
2nd Mortg
Chicago
Residential
$72,121
8.75%
49 Days
multi family building purchase
Purchase
Chesapeake
Multi Fam
$569,785
8.875%
64 Days

How to Get Hard Money Loan Advice: We Can Help

We want to see your success with hard money loans as much as you do. Our goal is to help you establish a working relationship with private lenders and close on a loan quickly.

If you have never applied for hard money loans, we are here to help you every step of the way. Unlike a traditional lender, private investors lend money to those with lower cash reserves and offer flexible interest rates for investors with all types of credit history reports.

Get Started Today for Hard Money Loans

The companies we recommend are the hard money experts you can rely on for your financing needs. They offer a straightforward application process for hard money loans and make it easy for borrowers.  We invite you today to seek pre-qualification for hard money loans online.

CHECK FUNDING IN YOUR STATE