One of the most profitable strategies for investing in real estate is buying a property and flipping it. However, as lucrative as this strategy might be, you’ll often find a seller that offers a great price. However, that’s provided you pay cash for the property and close quickly – even when you don’t have the money. This is where hard money lenders and their loans come in. You can get the cash you need to close deals quickly, and you won’t have to getting a bank loan. To get a hard money loan, though, you’ll need to qualify.
Qualifying Hard Money Loans vs. Bank Loans
The main criteria hard money lenders use to determine qualification is the profitability of the deal you wish to finance. Banks are mainly concerned with your creditworthiness as an individual and the property that you offer as collateral. This is mainly because banks offer up to 97 percent of the value of the property. If you default on your mortgage payments, the bank faces a loss because of the high Loan-to-Value (LTV) ratio.
Granted, hard money lenders are also interested in knowing who they’re lending the money. So, they may consider the cash-on-hand, the experience of the flipper, credit, and income. In the end, the primary focus of hard money lenders is the actual property.
Dallas mortgage lenders carefully determine properties’ value, the extent of rehab you’re undertaking & the contractors you hired. Therefore, unlike banks, hard money lenders don’t prioritize income and credit score when judging one’s eligibility.
Types of investments funded by hard money loans
Hard money lenders require borrowers form a limited liability company rather than secure the loan as an individual. It is, therefore, imperative that you undertake the purchase of the property as a registered business entity.
The second requirement is that you don’t occupy the property. In other words, don’t live in the property for the duration of the loan. Third, confirm that your lender offers hard money loans for real estate in the state where your property is located. Many lenders focus on certain states and don’t offer their services nationwide.
Examples of real estate projects that we at Wildcat lending prefer include buy and flips, cash-out refinancing, and new constructions.
The most popular among these real estate projects are buy-and-flips. They involve purchasing a property, renovating it, and putting it back on the market at a higher price. The price is usually more than the total of the purchase price plus renovation costs.
As the name suggests, cash-out refinancing projects involve refinancing mortgage loans. In this case, you profit off taking the difference between the new mortgage loan and the existing mortgage loan. This amount is usually received in cash.
Finally, the term “new construction” often refers to a house that is currently under construction or one that’s never been occupied despite construction having been completed.
The details for qualification in each of the three cases may vary, so it’s important that you contact a hard money lender to discuss the terms. Most importantly, make sure that you have all your relevant information about your deal on hand. This will make the process go much smoother.
How fast is the loan process once you are approved?
One of the main advantages hard money loans have over bank loans is that they’re normally acquired quickly. The first step is ensuring that you have all the necessary documents and information about the real estate deal ready. Then, you should be ready to fill out an application.
If you have all the information pertaining to your investment available. Make sure it’s outlined in a clear, organized manner, a well-established hard money lender such as Wildcat Lending can let you know within a few minutes of your conversation whether you can qualify for the loan.
Once you submit your initial application, the next step is the underwriting process. During this time, the lender reviews the proposed scope of the project, contract terms, value of the investment, and the overall structure of the deal among other important information.
Dallas mortgage lenders will have a qualified and experienced appraiser inspect the property and appraise it while the loan process continues. This helps to ensure that their judgment on the value of the property is accurate.
Upon the underwriting process’ completion, and the loan’s approval, it’s released. A real estate attorney’s office or a title company holds the loan at this time. A reputable and well-established hard money lender can undertake the entire loan process anywhere between a few days to two weeks.
Choosing the right hard money lenders
When searching for a hard money lender, make sure that you choose a reputable provider of the services to get the best results. Just as it is important to research various real estate deals before committing to one, it is essential that you do your due diligence before obtaining funds from a hard money lender.
Another crucial element is getting a hard money loan from a company that specializes in offering this type of financing in Dallas. A qualified and experienced hard money lender will know exactly how to structure the financing to ensure a good outcome for all involved parties.
The bottom line
When trying to figure out whether you can qualify for a hard money loan, there are three important things you need to consider: the profitability of the real estate investment project, the time frame in which you want to close, and your credit. The first one, profitability, should be your main concern.
Hard money loans for real estate investors have become popular because you get them faster and their terms are more flexible than conventional bank loans’. If ever you – like many real estate investors – find yourself in a situation where you lack adequate financing, contact a hard money lender to lock in your profit.