When you are seeking a private loan, it can be helpful to learn to think like hard money lenders do. This will help you to prepare for the process and to know which information will be critical to the decision to fund or reject your request.
When you are making your first request for hard money, it can appear to be a very odd change from completing the myriad of paperwork required by a traditional lender. It might even feel as though you are ill prepared for the meeting because you are not carting in piles of bank statements, credit reports and income statements. And if you are, then you are going to be surprised and embarrassed when your lender is less than impressed and wants nothing to do with all of your paperwork. Hard money lenders are a different breed and they are looking for completely different information to evaluate your request and determine if they will approved your loan.
The key to securing hard money is nailing the loan to value ratio. This is the ratio between the amount you are requesting and the current value of the property. Most hard money lenders are looking for an LTV of 65-75%. There are some lenders who will also consider the property’s after repair value as well but that is not a standard practice. With that in mind, those lenders will also want to see your business plan to renovate the property and your budget to make sure that the numbers are in line with their estimate for the renovated value of the property.
Know the Critical Term
Knowing that the loan to value ratio of the property is the key to getting a loan, you need to be certain that you have enough of a down payment to make the loan request fall into the desirable range for the lenders. Understand that the lender is protecting his or her investment by only lending up to 75% of the value of the property. In the event that you are unable to make your loan payments, the lender will need to take possession of the property and sell it to get their investment back. And the only way to be sure that they get their full investment back is to know that the property will always be worth more than the balance of the loan. Hard money lenders are not being unfair or trying to take advantage of borrowers, they are simply practicing good business and protecting their investment.
Think like a Lender
Understanding the lenders point of view will only help you to better prepare yourself for requesting a loan. Knowing that the most important factor is the LTV and not your credit score or credit history will save you a lot of time and paperwork. You can then invest that time into researching the current value of the property and procuring funding to make the down payment you will need to meet the LTV ratio. In addition, you can invest your time in creating your renovation schedule and budget to demonstrate that you will be quickly and efficiently adding value to the property as soon as you take possession of it. All of this information will help to ensure that your hard money request gets funded.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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