5 Steps to Successfully Apply for a Hard Money Loan

The process of applying for a hard money loan is a systematic process rather than simply asking the lender and getting the funds right away. As these types of loans are utilized for different purposes, the reason for acquiring the loan must be clearly stated to the lender. Let’s examine the steps required for a borrower to apply for a hard money loan.

1. Show the value of the property you want to purchase

In applying for a hard money loan, the collateral value of the property is considered and not the personal credit score of the borrower. This calls for presenting important documents such as details of construction budgets, architectural plans of the property, and the contractor’s correspondence for relevant repairs and renovations. Note this process applies for commercial clients as well as home buyers.

• Hard money loans are most commonly provided to properties purchasers who are looking to acquire a property and then quickly sell it or refinance. But sometimes first time homebuyers also go for

hard money loans. Hard money lenders often inquire about the property and location to ensure the investment is safe and authentic.

• Prove the value and worth of the property in the neighborhood. Answer questions like: What is the price of the similar properties nearby? Does the market history of the neighborhood is profitable? What are the chances and estimations for growth? This data should be accurately available in order to present it to the lender.
• Having an experience as a real estate developer boosts the chances for loan approval. Show the lender how successfully you have handled different real estate projects in the past.

2. Present a financial plan

Most lenders takes the responsibility of funding 60 to 70% of the after-repair value (APR), while you will be entitled to fund the remaining 30 to 40% cost. If you have this additional cash present, then chances of loan approval get better. However, if you do not have this amount to present, then lender might put a lien on one of the properties you possess.

• Most lenders do prefer the borrowers to have this 30 to 40% amount, and if not, they does not appreciate borrowers to acquire another loan or credit card to finance this amount.
• This principle typically applies to individual homes and not huge commercial projects.

3. Prepare additional documentation

Apart from the details of the property value, lenders might also be interested in acquiring your personal financial information. Your financial information includes paystubs, bank statements, W-2s, and other details in your credit report. All such information should be readily available in case the lender asks to go through.

4. Gain legal protection

Before you sign any of the documents given by the lender, be sure to review the terms and conditions carefully by a lawyer. Private investors are made to adhere to quite few regulations, so you need to ensure your legal interests are safe.

• If the lender does not show any hidden fees or additional costs that might come with the loan throughout the course of repayment period, then this is a critical concern. So clearly ask if all the applicable fees are disclosed in the agreement. Also see if the agreement does not contain any details about the repayment schedule, interest rate charged, and total interest payments in the end. If such details are missing, then this is a major sign it is a bad loan.
• Consult the lawyer if the loan can in any way affect your personal liability. This factor is not always required and depends on the net worth and project of the borrower.

5. Maintain contact with the lender

hard money lenders Houston do notice and inquire if a borrower is genuinely interested in getting a loan. So be vigilant in returning their calls, and provide them all the required information within the given deadline. Do note that hard money lenders normally keep less capital in hand as compared to banks. So if you get delayed in getting back to them for whatever reasons, there’s a high chance some other borrower may approach them to acquire the funds.

James Alberto is an experienced pest control professional, turned freelance writer. he has worked with several reputable pest control companies in the past, but now wants to share his knowledge with others and help them prevent pest infestations.