When you go to a traditional lender, like a bank, they care about your credit score, and your ability to repay the loan. In contrast, hard money lenders care exclusively about the value of the property. What does that mean? Hard money lenders, when giving a hard money loan – care about what the value of the property is relative to the loan they are offering on the property.
The largest factor in qualifying for a hard money loan
The answer is simple: the value of the property. Remember, if you don’t repay the loan – the lender takes the property. This means the lender benefits because he/she is taking over the property, and can sell it and keep the proceeds. It’s because of this that hard money lenders never look at your credit score, your finances, etc.
What hard money lenders look at is the LTV. They look at the loan requested, versus the value of the property. Most lenders will lend up to 70-80% of the value of the property after repairs. That means on a $100k property, they will lend you 70-80k.
There are other variables a lender will look at, such as how long you need the money for, the amount of money you are putting down, etc to assess the cost of the loan to you. In most cases, you can expect a 8-12% interest rate, with 1-2% upfront as a down payment. It is very typical for lenders to have an independant appraisal done of the property in order to ensure the property’s value has been represented accurately.
What does a hard money lender want when giving a loan
Most hard money lenders want to see a few things.
- They want to see the LTV. They want to know how much money you need, and want to know how much the property’s value is. If you plan on doing repairs to the property, you should be able to assess the final sale value of the property. Based on the final LTV, the lenders will give you a loan up to 70-80% of the LTV.
- Most lenders want to know the terms of the loan. Lenders want to have an understanding of what your exit strategy is, and how long you will need the loan for. Be prepared to tell a lender how many months, or years, you’ll need the loan for.
- What collateral you have. In some cases, lenders will want multiple forms of collateral for the loan – if the property’s value isn’t significant enough.
- Is the loan for raw land, or for an existing property. Many lenders will not lend for raw land or if you are planning to demolish the property and rebuild it.