Hard Money Loan Requirements You Should Know About

    Hard Money Loan Requirements You Should Know About

    Did you know that 16% of Americans have very poor credit? Another 18% have a fair credit score. Under both circumstances, it is hard to qualify for a traditional loan.

    If this problem is troubling you, you might benefit from a hard money loan. What is a hard money loan? It’s a financing option for those who don’t want to base their approval odds on a credit score.

    Hard money loan requirements tend to be more lenient than traditional loans as they are provided by private lenders. Because a credit check is not required, hard money loans are more available to a wide range of borrowers.

    Read on to learn if you qualify for a hard money loan.

    Down Payment/Equity

    Down payments for hard money loans tend to be larger because there is more risk for the lender. Before applying for this type of loan, you should have the required down payment ready to go.

    If you are using a particular property as collateral for the loan, ensure you have equity in it. Some lenders will allow a borrower to use more than one asset to secure a loan.

    These are the main hard money loan requirements that hurt or support your chances of getting approved. The higher the down payment or the more equity you have in your property leads to a lesser risk for the lender.

    Proof of Income

    Receiving a hard money loan requires less paperwork than a traditional loan. Yet, one document you will need to obtain is proof of income.

    The lender uses this financial paperwork to decide if the borrower has the necessary cash to make the monthly payments. The borrower will need sufficient income to also cover holding costs such as:

    • HOA payments
    • Taxes
    • Insurance

    The more cash reserves you have, the more likely you are to get approved.

    An applicant without cash reserves still has a chance to receive a loan. Ask your lender if they can increase your loan amount and hold funds. This will ensure your payments are covered so that you are approved for the loan.

    Real Estate Experience

    Hard money loan rates tend to be high so the lender needs to know how the borrower plans to repay the loan. Since these loans are often used for those who flip houses, real estate experience will come into question.

    Although it isn’t impossible to get a hard money loan as a beginner investor, someone with more experience has a better chance. Someone with less experience will need to detail their project and include an exit strategy.

    Hard Money Loan Requirements: Do You Qualify?

    In plenty of situations, applying for a hard money loan is the better option compared to a traditional loan. There are fewer hard money loan requirements and borrowers can benefit from a quicker overall process.

    If you don’t qualify for a hard money loan, try to negotiate with your lender. Compared to traditional banks, these lenders tend to be more lenient.

    For additional articles about loan options and how to qualify, check out our other posts about personal finance.