While qualifying for a hard money loan is much easier than qualifying for traditional bank financing, there are still issues that can get you denied. Of course, the number one thing all hard money lenders look at is the property, but inevitably they will look to you and your creditworthiness as well. Here we will show you how to qualify for a hard money loan.
Make Sure the Subject Property Works for the Lender.
Before approaching a lender, verify that the property is within their lending area and is a property type they can lend on. For example, most hard money lenders cannot lend on homestead properties or very rural properties. We, at Little City Investments, only lend in Texas. Also, make sure you aren’t overpaying for the property. Most lenders base their loans on LTV and nothing will kill a deal faster than failure to reach that threshold. If you’re not getting the property at a price below market value, then you’ll need to bring in some of your own cash to qualify for a hard money loan.
Do NOT Have Fraud Convictions on Your Record.
Most lenders run background checks on you immediately, and they are looking for fraud. If you have any recent criminal history of any fraud or theft, do not bother applying. That said, a few lenders will allow a timeframe for acceptance of past fraud convictions, but usually it’s a minimum of ten years.
Have a Credit Score at Least in the Mid-500s.
Not all hard money lenders run credit, but you will usually get much better terms from those who do. The reason: A safer investment for them means lower rates for you. A credit score in the mid-500s will generally get you approved for most hard money lenders. (And interest rates usually get lower as the score increases.) Also, be wary of any large judgements or tax liens that may show up. These can also kill the loan if they can’t be paid off at, or prior to, closing.
Interested in our borrower requirements for hard money loans? Check out our FAQ.
One of the major red flags for any hard money lender is total lack of experience on the part of the borrower. Complete, raw newbies regularly get turned down. Generally, you’ll need to have at least one successful exit from a real estate investment deal to show to the lender. But some lenders, like Little City Investments, do lend to first-time borrowers. However, we still take experience into consideration: Have you remodeled a house before? Have you worked on other types of construction? Have you used your own money for real estate investment?
Be Able to Show You Have Money to Pay Interest.
Not all hard money lenders require bank or financial statements from borrowers. (Little City Investments does not.) However, if you think you are borderline in qualifying and can show you have enough funds in your account to service the debt of the loan for six months or so, then take the initiative and show the lender. If they are on the fence about lending to you, then this could be the piece of info that sways them in your direction. That said, many lenders require 3 months of bank statements anyway, so you should always be prepared to produce them.
Do you qualify for a hard money loan? If so, Little City Investments would love to be your lender. We are Texas’ go-to hard money lender for fix-and-flips, refinances and new construction. We’ll get your deal done! Request a loan today.