Hard Money loans are different than most traditional types of loans and financing in a number of key ways. Whereas most traditional loans focus almost exclusively on the credit-worthiness of the borrower, hard money lenders are typically most concerned with the value of the underlying property in question. The reason for this is that hard money loans are secured by the underlying property. As a result, even borrowers with lower than average credit profiles may be eligible to receive a hard money loan.
Still, there are a number of important factors that are important for borrowers to consider when seeking to obtain a hard money loan. The single most important thing a prospective borrower can do is to make sure he or she is able to provide the lender with all relevant information about the value of the property, the purpose of the loan, and the ways in which the borrower intends to utilize the funds.
Lenders will want to conduct thorough due diligence on the property itself in order to try to mitigate as many risks as possible. In addition to hiring real estate professionals to conduct an appraisal of the property, lenders will also rely on their own knowledge of the local market in assessing the value of a property.
Lenders will also want to see that borrowers have come up with a thorough and reasonable plan of action for utilizing the funds from the loan. Borrowers should come up with a plan for how they hope to renovate the property, how much they anticipate each part of the renovation to cost, and a reasonable estimation of how long they anticipate the renovation will take to complete. All of these estimations will help the lender to determine the After Repair Value (ARV) of the property, which in turn will help the lender decide how much they are willing to lend to the borrower to complete the project.
While the focus of the lender will be on the value of the underlying property and the potential profitability of the investment, lenders also consider the reliability of the borrower requesting the loan. Financial considerations will play a role in this decision, as will the borrower’s previous experience investing in real estate.
In conclusion, hard money loans are an excellent option for real estate investors who need funding to pursue their next fix and flip opportunity. If you are in need of funding for your next project, get in touch with YC Funding. We offer hard money loans in most major markets and would be happy to work with you.