Do you have a real estate you intend to develop, but you are financially stuck? Well, you should think hard about a hard money loan. This loan is different from conventional loans whose main lenders are credit unions or banks. Private investors usually fund this loan and its repayment period can be extended from one year to 5 years depending on certain conditions. Most hard money lenders mind about the value of the borrower’s property more than they consider their credit. However, the application of hard money loans requires you to:
Present the prospective value of the property you intend to buy
The hard money lenders will finance you depending on the collateral value of your property, but not your credit score. This will require you to present the lender with your contractor’s bid sheets, architectural property plans and complete renovation and repair budget. Although these loans are mainly given to seasoned developers who purchase properties and then refinance them, first time buyers are also eligible applicants. However, first time buyers should be willing to give information about the neighborhood’s growth projections, market history and the prices of similar neighborhood properties.
Give your investors a comprehensible financial plan
Borrowers should know that most hard money financiers usually fund about 60-70 percent of the home’s after-value-repair (ARV). The lenders expect the borrowers to finance the remaining 30-40 percent. Borrowers with this 30-40 percent cash at hand have higher chances of hard money loans approval. Those who don’t have this cash in hand may have lesser chances of getting this loan especially if they don’t own other properties that the lenders require.
Get additional documents ready
It’s true that most lenders may mainly require knowing the value of the property you wish to purchase. However, they may also require you to present additional financial information. This could involve additional documents such as bank statements, credit history and pay stubs among others. Many lenders are more confident with borrowers who present such valid additional documents.
Mind about self legal protection
Getting a hard money loan requires you to sign several lending documents. It’s advisable not to sign any paperwork before your lawyer gives you a leeway to do so. Private investors have few regulations; hence, you need to fully protect all your legal interests to avoid making lamentable errors. Find out if the lender is willing to disclose any additional or hidden charges, which you may eventually discover in your repayment program. Consider it a red flag if the lender does not serve you with repayment details such as the interest accrued and the amount of money that will service the interest.
Communicate constantly with your lender
Most lenders want to see your indisputable interest in hard money loans. Respond to their calls immediately and give all the information they require. Unlike banks, hard money lenders don’t have much capital in hand. If you don’t timely provide them with the information they need, they may give that money to a more responsive borrower.
If you follow the above tips, the lender can hardly disqualify your candidature for a hard money loan. Although your property’s value could impress the lender, they could disqualify you in the process if you don’t respond to their calls, lack a clear financial plan or even fail to present any additional document they need. These simple steps therefore, easily increase your loan approval chances.