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A crucial part of having your requests approved by a hard money lender is getting to know what they are looking for. This way you will know when you have found the right deal and can present the right information about the deals. If you are interested in learning more about what hard money lenders are and what they are looking for, keep reading.
Here are three things to keep in mind.
1. Amount of Skin in the Game
When a hard lender is evaluating a borrower, one of the first things they look for is someone who is willing to provide a large enough down-payment to offer assurance that they will lose a great deal if the project happens to enter into default. As a result, most hard money lenders provide a lower LTV – loan-to-value – ratio than a traditional bank lender. It can also help to ensure that the loan is going to have enough equity that it will be paid off during foreclosure if this happens.
If you do not have any of your own money to put into a deal, then you may want to find a partner or investor who does or show that your contribution will come in the form of labor needed to renovate the property or handle other improvements. The goal is to show that you will also lose something if things don’t go as planned.
2. A Motivation to Repay the Loan
While having a down-payment is important, hard money lenders are also interested in your exit strategy. After all, the ultimate goal is to have you repay the loan so they can re-lend the money to another borrower instead of having the money in a foreclosed property for years.
3. Your Ability to Repay
When you go to the bank for a loan, they look at your credit rating to figure out if you are going to repay what is borrowed. On the other hand, a hard money lender will look at the actual income-producing potential of the property in question. In most cases, your credit score won’t matter if you can prove that you have some type of exit strategy in place, or a plan that will ensure your project is profitable enough to repay the loan you have received.
In the end, a hard money lender will want you to prove that you have the ability to repay the money they loan you. This is the most crucial factor and one you need to keep in mind when trying to get this type of loan.
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