You’ve probably heard of hard money loans but aren’t quite sure what they are. A hard money loan is a type of loan that is used to purchase real estate. Unlike traditional mortgages, which are based on the borrower’s credit score and income, hard money loans are based more on the value of the property being purchased. So, how to qualify for a hard money loan? If you’re thinking of using a hard money loan to purchase real estate, here’s what you need to know in order to qualify.
How to Qualify for a Hard Money Loan
Qualifying for a hard money loan is generally easier than qualifying for a traditional mortgage. The reason for this is that hard money lenders are more interested in the value of the property being purchased than they are in the borrower’s credit score or income. That being said, there are still some qualifications that borrowers must meet in order to be approved for a hard money loan.
Here are some hard money requirements that hard money lenders look for when qualifying buyers for hard money loans:
- A down payment of 10-20% – This may not always be the case, but many lenders want the borrower to have some skin in the game. We’ve seen lenders loan with nothing down and as much as 30%.
- A decent credit score – While hard money loans typically don’t focus as much on credit, most lenders will still want to see a decent score. A good target would be 600+.
- A solid business plan / scope of work – Lenders will want to see a detailed break down of the costs to renovate the property. If you’re planning on a rehab to rent strategy, they will likely want to see rent estimates as well.
- A good amount of equity – The biggest factor in your approval will be the amount of equity in the property. You’ll need to show a good loan to value (LTV) – typically 70-80%. You’ll need to show comparable sales in the area as proof as well.
- Finding a lender who works in your area – Finding a good lender is important. There are many fly-by-night lenders out there who are not reliable. As a borrower, you should also be vetting your lender as much as they’re vetting you. Be sure they loan in your area and always look for lenders will a good track record. Check our list of the best hard money lenders by location for help in your area.
How to Get the Best Interest Rate on a Hard Money Loan
There are a few things that you can do to get the best interest rate on your hard money loan.
Here are some tips:
- Have a good amount of equity in the property – As mentioned before, lenders will want to see a good LTV (loan to value). If you have more equity in the property, they will be more likely to give you a lower interest rate.
- Shop around – There are many hard money lenders out there. Be sure to shop around and compare rates before committing to one.
- Gain experience – Lenders often give better terms for more experienced borrowers. The more properties you buy and sell, or own, the better.
Recommended Reading: How to Approach a Hard Money Lender
What Are the Benefits of a Hard Money Loan?
Let’s get a little more background on hard money loans themselves. There are a number of benefits that make hard money loans an attractive option for borrowers.
Some of the benefits of a hard money loan include:
- They’re fast – Hard money loans are typically funded much quicker than traditional mortgages. While a traditional mortgage may take 30-45 days to close, a hard money loan can sometimes be closed in as little as 7-10 days.
- They’re easier to qualify for – As we mentioned before, hard money loans are easier to qualify for than traditional mortgages. This is because they’re based on the value of the property being purchased rather than the borrower’s credit score or income.
- They can be used for a variety of purposes – Hard money loans can be used for a variety of different purposes. They’re commonly used to purchase investment properties, but they can also be used for things like home renovations, business loans, and more.
In Conclusion – How to Qualify for a Hard Money Loan
If you’re trying to qualify for a hard money loan, be sure to consider the tips mentioned in this article. We’ve discussed what you’ll need and some benefits of hard money loans. These loans can be a great way to secure more properties and grow your real estate business. Hopefully this article answered all of your question about how to qualify for a hard money loan. Thanks for reading!