Hard Money Loans are asset based, here are the steps to get one.
- Present a description of the property and the value or potential value of the property
Nothing drives lenders crazier than trying to figure out what a property is. As a potential borrower you should provide a description of the property, along with the size, number of units and a rent roll. If you have historical expenses those will be helpful as well.
Lenders don’t want to make bad loans, but they won’t even consider a loan without some idea of the value of the property as compared to the loan request. If you are looking for a hard money lender to finance a deal, you must present the lender with an idea of the value or potential value of the property before they’ll consider the deal. This is called the Loan to Value ratio.
- Have a financial plan
Hard Money Loans are typically very short term (1-2 years), so Lenders always want to know the exit plan. Will it be a refinance? Sale of the property? Bringing in a new equity partner?
Lenders want to make loans, get paid off and recycle the money into a new loan. Without a clear cut exit strategy most lenders won’t even consider a deal.
- Be prepared to offer additional documentation the lender might ask for
Hard Money loans are typically asset based, so there is no need for credit reports or tax returns. Lenders do, however, want to see a rent roll, copies of any commercial leases (or residential for 1-4 family properties) and the certificate of occupancy for the property. If you are planning on doing a renovation the Lender is going to want to see a budget for the construction.
- First or Second Lien
Are you paying off your first mortgage? Or do you want a second behind the first? Does your bank allow second mortgages? These are important questions you need to have the answers for before you approach a lender. This also calls into question the Loan to Value ratio. You may want to keep your conventional first mortgage due to the low rates/better terms, but if the value isn’t there to support a 2nd mortgage refinancing may be your only option.
- Clean Title?
Do you have clean title to the property? Or are there judgements, liens or any other liabilities against either yourself or the property? Some of these can be overlooked or paid off at the closing table, others will be deal killers. Make sure to make Lenders aware of any potential issues when you apply for your loan
H&O Capital is here to answer all of your questions. Contact us for more information
