How to Qualify for a Hard Money Loan - By: Louis Jeffries

Hard Money Rehab Loan Qualifications.

Many times investors ask me to send them information on a hard money loan. As a mortgage broker with many programs and options it is hard to tell them exactly what the qualifications are for financing their project. They are so many because hard money real estate lenders are private investors. Each private investor create their own qualification criteria. Unlike conventional financing there is no secondary market and there are no quasi government organizations like Fannie Mae or Freddie Mac that establish uniform or conventional guidelines. There are qualifications that each bridge and real estate rehab lender have in common. They are:

1. The property and after rehab value.
2. The exit strategy.
3. The down payment.
4. The investors experience.
5. The investors credit.
6. The investors cash reserves.

The Property.

There was a time were the property and the after rehab value of the property was the sole qualification for getting a short term loan as a real estate investor. Whether the deal is commercial or residential investment property the collateral remains the most important criteria to qualify for funding. The reasons it is not the only criteria are the lenders have been burned by the economy and the declining value of properties plus excess inventory of properties available. This means that if they have to take the collateral for the short term loan the property has been harder to sell and they get less money for it. Yet the collateral is still and will always be the most important criteria. The lower the loan to value the better the deal. Even though some lenders will go as high as 65 to 70% of the after rehab value those deals are tough when so many are available at or below 50%.

The Exit Strategy.

Almost of equal importance to the collateral to many purchase rehab lenders require a solid verifiable exit strategy. This means if you say you are going to sell it you should have a buyer who is pre-approved and their information needs to be verifiable by the lender. If you say you want to refinance the property then you need to have the income, credit and assets to qualify for a conventional refinance loan. Whatever your exit strategy is it must be verifiable by the lender. This is good for the lender and for you. No one wants to get stuck with a non performing asset.

Down Payment.

There are programs that do not require down payment they require other sometimes tougher criteria. Most purchase rehab real estate investor lenders require a down payment. For this reason it is good to be prepared to invest 20% to 30% in your projects. Because there are so many projects available yet funds are limited a down payment makes your project easier to fund. Also if you have poor credit assets help.

The Investor.

The credit, assets and experience of the investor plays a role in the qualification process. For a real estate investor qualify the should have good credit, assets and experience. If they do not and are short in any of these areas they need to be stronger in others. Meaning they should have a deal with lower than 50% loan to value, a strong exit strategy and or a down payment. Because each private investor has different criteria, it is hard to say one deal will qualify and another would not based on one criteria or another. But, the first three are the most important. Most deals that the real estate investor has that requires funding will qualify based solely on the after rehab value of the property, the exit strategy and the down payment. Even though there are no down payment deals available you need to be a strong investor to qualify for them.

About the Author

As a Mortgage Banker and Broker for 20 years I have relationships with private investors who make hard money loans for residential and commercial purchase rehab projects. For financing of real estate investment and investor rehab deals, whether commercial or residential contact me at Hard Money You can also email me a louisj@alldominionmortgage.com

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