Requirements For Arizona Hard Money Loans

Arizona Hard Money Loans are not the same as traditional bank loans. And because of that, the requirements for these loans are also quite different.

Arizona Hard Money Loans differ from traditional bank and mortgage company loans in many ways, so it only makes sense that the requirements for these loans would also focus on different criteria. But for many borrowers, it is the different qualifications that make hard money so appealing.

Borrowers who have no credit will have a very difficult time getting a loan from a traditional bank because the approval process is based on the applicant’s credit score. The bank feels that without a credit history and a strong credit score, the borrower represents too much of a risk and the bank will decline the loan application. But Arizona Hard Money Loans are asset-based, meaning that they are based on the value of the property being purchased more so than the borrower’s personal credit history. So a person with no credit history can still qualify for hard money.

Likewise, a person who has bad credit is also going to be denied by a bank or a mortgage company with applying for a loan. In some ways, having bad credit is worse than having no credit at all. But a hard money lender is normally willing to lend to a person who as a 550 credit score or better. What the hard money lender is looking for is proof that you have an income so that you can repay the loan that you are requesting.

Fix and Flips

If the borrower is going to use the hard money for a fix and flip project, the lender could also be interested in the experience level of the borrower. Fix and flip projects can be tricky and therefore represent a higher risk to the lender. Each lender is free to set his or her own requirements but most will want to see the records of a few successful projects before they are willing to loan hard money for fix and flip projects. There is an added risk with any property undergoing renovations as until the project is completed, the property value could actually drop and no longer be worth as much as the balance on the loan.

Down Payments

Because the loans are based on the value of the property being used as collateral, the lender wants to be assured that the property will always be worth more than the balance of the loan. This ensures that if the borrower defaults on the loan, then the lender can take possession of the property and sell it to recover his or her investment. For this to work in the lender’s favor, the borrower must often make a large down payment on the property. In some cases, the lender will require as much as 25% down to be certain that the property holds instant equity. Understanding the requirements of Arizona Hard Money Loans also helps to explain some of the benefits and drawbacks and how the loans can be best used.