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How to Qualify for a Hard Money Loan

| January 1, 2015 | By

The current buyer’s market has many real estate investors scrambling to pick up hot properties before prices rise and opportunities for profits fall. For investors who are eager to buy real estate, nothing is more important than financing. After all, even the most amazing properties fall by the wayside if no one can afford to buy them. While financing can be hard to come by in today’s economic climate, aspiring real estate investors shouldn’t despair. Hard money loans, also known as private money loans, provide viable options for investors who want to buy income-producing properties.

Understanding Hard Money Loan Options

Many first-time real estate investors are eager to jump into the market but are unsure of which financing products will best meet their needs. If you’re considering buying an investment property, it’s important to understand that conventional loans offered by banks and other traditional lending institutions are generally not suitable for investors. This is simply because banks use stringent guidelines regarding both borrowers and properties when qualifying loans. Even highly qualified investors may be turned down by banks.

When conventional financing fails, many investors turn to hard money loans. So called because they are financed by private lenders who are willing to put up cash for investors, these types of loans are ideal for a wide variety of purchase types. Unlike conventional loans, hard money loans can be used to purchase distressed properties and other properties considered risky by traditional banks.

Hard money loans are also ideal for many investors because most private lenders consider borrower equity of greater importance than borrower credit scores. This means that borrowers who have less-than-ideal credit scores or who have been through bankruptcy and foreclosure may be able to qualify for private financing. Borrowers who already own multiple properties can also be helped with hard money loans as lenders are generally willing to consider investors who already hold multi-property portfolios.

Several different types of hard money loans are available to borrowers:

  • Fix-and-flip loans for the purchase and rehab of distressed properties.
  • Bridge loans to help business owners cover financial gaps.
  • Commercial loans for the purchase of distressed commercial properties.

Can I Qualify for a Hard Money Loan?

Applying for hard money financing isn’t difficult. However, it’s important that you take some time to learn how the process works so that applying for a loan is a breeze. In order to apply for a hard money loan, you’ll need detailed information about your own financial holdings, or equity. You should also have information about your current monthly earnings on hand.

In addition to being prepared to talk about your own financial standing, you’ll also need to be able to talk to your lender about the property you want to buy. Take time to create a detailed plan for how you’ll use a property to generate income. If you want to apply for a fix-and-flip loan, it’s important that you have solid information about how much necessary renovations will cost. The more you know about the property you want to buy and how you’ll use it, the better.

Of course, you should also work with a trusted private lender. At Socotra Capital, we’re proud to be the premier hard money lender for California investors.