Mistakes to Avoid While Applying for a Hard Money Loan
Whether you don’t qualify for a mortgage loan or want to finance a property faster, you may consider a hard money loan. Hard money loans provide a creative financing option for investors looking to expand their portfolios. However, when applying for a hard money loan, there are several things to consider. Read along to learn about common hard money loan application mistakes and how to avoid them.
Contents of This Article:
- Is It Easy to Get a Hard Money Loan?
- How to Get a Hard Money Loan
- Mistakes to Avoid While Applying for a Hard Money Loan
- Make It Easy With Maryland Hard Money Lenders
Is It Easy to Get a Hard Money Loan?
Applying for a hard money loan is quite simple, depending on the company or individual you’re getting it from. Generally, hard money loans have fewer requirements and a much faster approval process than traditional mortgage loans.
That said, the process of getting a hard money loan differs depending on the individual, investment company, or private business funding the loan. Regardless of who funds your loan, you’ll usually need a significant down payment, proof of income, and a realistic property and exit strategy.
As stated above, funding a hard money loan is usually a quick and straightforward process as long as you have the correct information on hand. So, next, we’ll review how to get a hard money loan for your next investment property.
How to Get a Hard Money Loan
If you’re looking for creative financing for your next investment, the first step is to apply. That said, you’ll want to have the correct information and a plan in mind before applying for a hard money loan. Ultimately, if you want a hard money loan, here are the steps you’ll need to follow.
- Save for a Down Payment- Hard money loans usually require larger down payments than traditional mortgage loans. As such, you’ll want to start saving as soon as possible before applying for a hard money loan.
- Find a Reputable Lender- Finding a reputable lender for your real estate investment is a crucial step in the process. Check out their reviews, meet them in person, and hear what other investors have to say about the lender you’re considering.
- Show Your Potential- Your hard money lender will want to see that the property in question has potential. After all, they’re more interested in the property’s value than your financial position.
- Apply for a Loan- Traditional mortgage loans can take weeks or months to process. However, hard money loans can get funded in just a few days if you have the proper documentation.
- Make a Repayment Plan- Most hard money loans have shorter repayment terms, sometimes as fast as 12 months. As such, it’s essential to have a repayment plan for your loan, whether selling the property or refinancing with another loan type.
Mistakes to Avoid While Applying for a Hard Money Loan
If you’re applying for a hard money loan, there are a few mistakes you’ll want to avoid. While the requirements aren’t as strict as those for conventional mortgage loans, you must still consider your credit score, financial information, and exit strategy.
As such, here are the mistakes to look out for if you’re applying for a hard money loan.
- Not Knowing How Much You Need to Borrow
- Failing to Read the Terms and Conditions
- Providing the Wrong Information While Applying
- Failing to Improve Your Credit Score
- Applying Without an Exit Strategy
Not Knowing How Much You Need to Borrow
First and foremost, you must know how much you need to borrow from a hard money lender. Ultimately, having a realistic idea of how much you’ll need without over-valuing the property is essential. Some borrowers value their property much higher than it is, which makes it challenging to repay the loan at the end of the loan term.
Before applying for a loan, it’s important to do extensive research to learn what the property is actually worth. You can’t rely on buyers to purchase the property at your desired price. So, you’ll want to have a realistic price point for the value of your home and how much you’ll need to borrow.
Failing to Read the Terms and Conditions
It’s crucial to read the terms and conditions of your hard money loan, as this is one of the most common mistakes borrowers make. Before you apply for a loan, understand hard money lenders generally charge higher interest rates and shorter repayment terms. As a result, it can be challenging to repay the entire balance by the time the loan period is up.
To avoid this mistake, make sure you read the terms and conditions thoroughly so you know exactly what you have to pay and when you must pay the loan off completely.
Providing the Wrong Information While Applying
If you want to get approved for your hard money loan quickly, having the correct information on hand is crucial. Once you get pre-approved for your initial loan application, you’ll want to gather the right documents for the rest of the process. For instance, if you’re getting a loan with Maryland Hard Money Lenders, you’ll need the following documents and information:
- Two years of tax returns
- A copy of the sales contract and deposit checks
- A copy of your driver’s license
- Bank statements showing how much you currently have and a personal financial statement
- A list of proposed repairs and schedules, with material and labor costs, and copies of contractor estimates
- Copies of appraisals or inspection reports
- Copies of your corporate documentation, if an entity borrower
- Addresses of cross-collateral properties, if applicable
Failing to Improve Your Credit Score
You don’t need a perfect credit score for a hard money loan, and you can usually get away with a lower score than you’d need for a mortgage loan.
However, while you don’t need a perfect credit score to apply for a hard money loan, you usually need a score of at least 650 or higher.
If your score is lower than 650, you may want to work to improve it before applying for a hard money loan. After all, a score below 650 raises red flags for lenders, and they may want to avoid taking the chance of you not repaying the loan.
Applying Without an Exit Strategy
Your hard money lender will want to know your plan for repaying the loan. If you don’t have a repayment plan for your loan, you may have a harder time getting funded. Typically, hard money loans are used for real estate projects, like fix-and-flip properties or new construction builds. Once the project is complete, borrowers pay the loan back in full.
However, you may have difficulty repaying the loan at maturity if you don’t have a plan for your investment. As such, many lenders require a solid exit strategy before they’ll fund your hard money loan.
Make It Easy With Maryland Hard Money Lenders
If you’re considering applying for a hard money loan, it’s simple with Maryland Hard Money Lenders. Just visit our website, fill out a loan application, and we’ll get back to you as soon as possible. As long as we have the right information, we can generally fund your hard money loan within 48 hours.
Our team of dedicated professionals will work with you so you can get the financing you need for your next investment. So, contact Maryland Hard Money Lenders today if you’re looking to fund your next fix-and-flip, rental property, or new construction build.