What Are Hard Money Lender Requirements?

What are hard money lender requirements

“What are hard money lender requirements” is a frequently asked question by both clients and readers alike. Here’s everything you need to know before applying for this loan.

Hard money loans are considered both a blessing and a curse by real estate investors. On one hand, they’re great for securing quick, hard cash to lock down an appealing deal. Whereas, on the other, its predatory nature charges steep interest rates in return for its fast provision.

No matter which side you’re on, one thing is certain: hard money loans have saved the day for countless real estate investors, especially if they were facing credit issues or undergoing a rough financial patch.

Nonetheless, hard money loans can get complicated in a heartbeat. Therefore, it is best to do your research and see what you are getting yourself into before making any commitments. When exploring hard money loans, you need to consider several questions, such as:

  • What are hard money loans?
  • What are hard money lender requirements?
  • What are its pros and cons?

In this post, the DFW Specialty Lending experts share some of the most important things anyone interested in hard money loans should know about.

What Are Hard Money Loans?

Mostly used in the real estate industry, hard money loans are short-term, bridge loans. Unlike traditional loans, they do not require a lot of paperwork and provide financing quickly – generally within a few days. These loans generally have short payment cycles and do not require high credit scores for approval.

In addition, no personal collaterals are needed since the hard money lender collateralizes the property an investor is flipping and not the one he/she already owns.

But as shared earlier, these loans come with steeper interest rates in return for their fast provision.

How Do Hard Money Loans Work?

Hard money loans are typically offered by private investment and non-banking institutions. To get this loan, real estate is mostly required for approval but other hard assets including machinery, vehicles, precious metals, equipment, etc. can also be used to secure the loan.

Hard money lenders usually don’t look into the credit history of investors in order to provide them with a fast closing time. The credit is mainly based on the collateral’s value. It’s worth noting that an investor isn’t permitted to borrow 100 percent of the asset’s value. Instead, only 65 percent to 75 percent is allowed. This is done to ensure the lender doesn’t face any loss in case investors default.  

The interest rates are high and loan terms are generally between 1 to 5 years.

What Are Hard Money Lender Requirements?

Although hard money lenders emphasize more on the collateral, certain credit score requirements must still be met. Here are some of the most common requirements of hard money lenders:

Generally, investors need to have a credit score of 600 or above. Traditional lenders usually require a score of 680 to 700. If we compare both, you can see that hard money loans are an excellent option for people with low scores.

Besides your score, a hard money lender will also consider other personal qualifying requirements such as:

Past house flipping history – Many lenders require investors to have past experience in the house flipping industry before approving loans. They want to make sure investors can handle the intricacies of the industry and are actually able to generate profits.

Loan-to-value ratio – Hard money lenders mandate investors to have some of their personal money invested in the property to reduce the default risk.

Repayment ability – This one is a no-brainer. No lending institution will be willing to give you a loan if you can’t prove you can afford the repayments. With valid proof of income, investors can get approved in as little as one week.  

Pros & Cons of Hard Money Loans

To help you make an informed decision, we’ve shared both the benefits and shortcomings of a hard money loan:

Why you should get a hard money loan:

  • These loans provide fast cash availability. With valid proof of income, investors can get approved in as little as one week.
  • Hard money loans are great for distressed properties since traditional lending institutions don’t accept them.
  • They are suitable for lower credit score investors.
  • Since the loan is based on the flipping property’s value, no personal collateral is required by the investor.

Why you shouldn’t get a hard money loan:

  • In contrast to traditional loans, hard money credit comes with steeper interest rates in return for its quick cash service.
  • The payment cycle of a hard money loan is relatively short (anywhere between 6 to 18 months typically). Therefore, be sure to sell the property and earn a profit in the soonest time possible.

Concluding Note

DFW Specialty Lending provides a range of quick and easy-to-access loans to real estate investors (including hard money loans), even if they have poor credit history or scores. Luckily, with our quick processes, clients won’t have to run after traditional lending institutions anymore simply to acquire a deal that’s good for them. We strongly believe that everybody deserves a shot at success. Contact our experts today to understand how you can get a hard money loan to turn your property-flipping dreams into a reality.

If you’re searching for more informative articles on fix and flip loans, do give the rest of our blog section a look. DFW Specialty Lending company endeavors to make sure every client is equipped with the necessary knowledge to decide what’s best for them.