Hard money loans are an excellent financing option for real estate investors who want to flip or build properties. The speed and flexibility of a hard-money loan are what makes them so appealing, but their security also stands out as one of the many reasons why these types of lenders have been gaining popularity over time!

You might be surprised to learn that there are just a few requirements for a hard money loan when compared with traditional bank loans. In fact, the most essential factor in getting your real estate project off of the ground is enough time and effort put into it. But before you start, let’s go through some other hard money lenders’ requirements to get prepared!

What Is A Hard Money Loan?

If you’re in the market for a loan, you might be wondering what options you have. You could go through a bank, or you could try your luck with a private lender. But what’s the difference between the two? What are the hard money loan qualifications compared to banks?

Well, it all has to do with collateral. Banks usually give loans backed by the borrower’s credit. This means that if you can’t make your payments, the bank can come after you for the money. Private lenders, on the other hand, are more interested in the asset that you’re buying with the loan. And if you can’t make your payments, the lender can take possession of the asset. 

That’s why hard money loans tend to be more flexible and available to some borrowers. So if you’re looking for a fast and easy loan, hard money might be the way to go.

How to get a hard money loan: key hard money lending requirements to consider 

1. Your investing experience matters

Hard money loans are a great option for experienced investors, and more experience in the business means lower rates. Typically, the more loans you repay successfully, the better your interest rate will be. So if you’re just getting started in real estate investing, don’t be discouraged if your hard money lender doesn’t offer the best rates at first. As you build your track record, you’ll be able to get financing that reflects your expertise.

2. Save up for a down payment

Making a down payment on a hard money loan is actually quite simple. The down payment is the difference between the purchase price plus budget and 70% of the ARV, or Appraised Value of the property. 

For example, if you’re purchasing a property for $100,000 and the ARV is $200,000, the down payment would be $30,000. Keep in mind that the ARV is always determined by an independent appraiser, so it’s important to have a realistic estimate of the value of the property before making an offer. With a little careful planning, making a down payment on a hard money loan can be a breeze.

3. Prepare cash reserves

When it comes to hard money loans, one of the most important factors lenders consider is the borrower’s equity. Equity is the portion of the property’s value that the borrower would still own after taking out the loan. For example, if a property is worth $100,000 and the borrower owes $50,000 on it, then the borrower has $50,000 in equity. If the borrower needs to borrow $25,000, then they would only have $25,000 in equity after taking out the loan. Lenders want to see that borrowers have some skin in the game, so they typically require at least some equity to approve a loan. This is why borrowers without any cash reserves may have a hard time obtaining a hard money loan.

4. Consider your repayment strategy

Hard money loans are a type of short-term investment, typically with terms of around 12 months. However, some projects may qualify for funding with a term of up to 24 months. When considering hard money loans, it is important to have an exit strategy in mind from the outset. This will ensure that you can repay the loan and avoid any penalties. There are several common exit strategies for hard money loans, such as refinancing, selling the property, or taking out a longer-term loan. Working with an experienced loan officer can help you to determine the best exit strategy for your particular situation.

5. Decide on a property type

When you’re considering taking out a hard money loan, one of the first things you need to do is decide what type of property you’ll be using the loan for. The most common types of hard money loans are for single-family residences, condos, and multi-family units. But there are also hard money lenders, like Lending Bee, specializing in all types of properties, such as apartments, office buildings, retail space, or warehouses. So before you start shopping around for a hard money lender, it’s important to know what type of property you’re looking to finance. 

6. Find a reputable hard money lender

Finding a reputable partner for financing your business is essential. Be sure to consider such factors as speed, reputation, and customer service. You also need to understand the terms of the loan before you sign anything. Here at Lending Bee, we are focused on providing our clients with the best experience and most competitive rates on the market. By taking the time to do your research, you can ensure that you find a partner that meets your needs. 

7. Apply for a hard money loan

Applying for a hard money loan is a relatively straightforward process. Unlike traditional bank loans, there is generally no prequalification involved. Many hard money lenders have an online application that can be completed in just a few minutes. In most cases, you will simply need to provide some basic information about yourself and the property you are looking to purchase. Qualifications for hard money loans are quite simple. Once your application is approved, you will typically be able to close on the loan within a week or two. 

8. Get approval from the lender

The potential borrower will be notified that they have been approved for the loan and will be given a timeline for when they need to provide the lender with the necessary documentation. The borrower will also be required to sign a loan agreement that outlines the terms and conditions of the loan. 

9. Get funds

Once the borrower has provided all the required documentation and signed the loan agreement, the hard money lender will provide them with the funds. In most cases, the funds will be transferred into the borrower’s bank account within 24 hours. Hard money loans are a great option for those who need to access capital quickly. 

By following the steps outlined above, borrowers can receive the funds they need in a timely and efficient manner.

10. Plan your future steps

It’s important to consider your future steps and how you will grow your real estate business. One of the best strategies for doing this is known as BRRRR: buy, rehab, rent, refinance, repeat. This strategy involves buying an investment property, renovating it, renting it out, refinancing the loan to take cash out, and then repeating the process. Not only does this strategy help you grow your real estate portfolio quickly, but it also allows you to reinvest the money from the refinance into future projects. 

So if you’re thinking about taking out a hard money loan, be sure to consider how it will fit into your long-term plans for growing your business.

Sum Up

Hard money loans are a great option for borrowers who need to act quickly. They are also ideal for borrowers who may not qualify for a traditional loan due to bad credit or other issues. 

However, before taking out a loan, it’s important to pay attention to the hard money lender qualifications. Remember that these loans usually have shorter terms than traditional loans, so it’s important to make sure that the investment will be profitable. However, if all the hard money loan credit requirements are met, such financing can be a great way to get funding for an investment property quickly and without hassle.

If you are considering a hard money loan, be sure to contact Lending Bee for the best rates and terms on the market!