Do I Qualify?
1. Equity in the Property / Down Payment
The primary requirement for getting approved for a hard money loan is having a sufficient down payment.
Hard Money World loans range between 20-30% down for residential and 30-40% down for commercial properties.
The larger the down payment (or equity in the property), the more likely the loan will be approved. A larger amount invested in the property presents a lower risk situation for the hard money lender.
2. Cash Reserves on Hand
Another requirement for a hard money loan is for the borrower to have adequate cash reserves in order to pay for various costs during the course of the loan such as monthly loan payments, taxes, insurance, HOA payments, etc. A larger reserve of cash will increase the likelihood of the hard money lender approving the loan.
For borrowers without the necessary cash reserves, a lender may increase the total loan value while withholding a slightly larger amount of the funds. These funds would then be used to pay taxes, insurance, loan payments and other holding costs. The borrower would still be able to get the loan and the hard money lender would feel more comfortable knowing the payments would be taken care of.
3. Real Estate Experience and an Exit Strategy
Hard Money World requires an outline of the borrower’s real estate experience. A borrower trying to get funding for their first fix and flip will receive a more detailed evaluation than a real estate investor with multiple projects and years under their belt. In addition to receiving a review of experience, the borrower will need to identify an exit strategy before funding is considered.