Acquiring a hard money loan doesn’t have to be the toughest task you’ve tackled this year. In fact, working with the right lender can make the process as simple as can be. Before meeting with your potential lender, there are a few ways that you can maximize your chances of approval.
Understand Your Collateral
One of the easiest ways to make your hard money lending experience a simple process is by having collateral available. Collateral is simply property that you own which can be held against the finances that you are pursuing. Hard money lenders tend to work in a host of different spaces within the real estate field. Lenders may offer to finance an industrial, commercial, or retail property. Hard money lending with collateral is also a common prospect for people looking to fix and flip homes.
Typically, the toughest hard money loans to acquire approval for are to finance the purchase of land. Land intrinsically does not produce income until it has been modified. Borrowers looking to finance a land purchase will require strong credit, provable cash flow, and a rock-solid exit strategy — with a 50% deposit.
Loan to Value Ratio
Otherwise referred to as ‘LTV Ratio’, your loan to value ratio is one of the most dominating factors that a hard money lender will consider during a request. Borrowers looking for a hard money loan typically struggle with credit or minimal cash flow, making it hard to get a loan without collateral as payment.
A lender that focuses on your loan to value ratio will instead prioritize the loan amount against the value of your property/purchase. A house that costs $100,000 with a loan of $50,000 would have an LTV of 50%. Keeping this number under a certain percentage point will make acquiring your loan more possible. Most lenders tend to cap their percentage position at 70% LTV.
Create a Repayment Plan
While hard money lenders won’t focus as much on your income as a conventional private money loan, they will still want to know how you plan to repay the provided finances. This may include asking about sale dates, ideas for improvements to a property, or what you plan on putting in the active listing agreement.
Take some time to craft your plans for the hard money loan that you are pursuing. Do you plan on repaying your loan through specific home improvement upgrades that result in a higher ROI? These are things that have to be discussed prior to sitting down with your hard money lender.
Call On Your Friends at Hard Money Lenders AZ
Dealing with loans can be tough in even the best of circumstances. For entrepreneurs and investors looking to acquire a hard money loan, contact the team at Hard Money Lenders AZ to discuss your goals and desires!