Essential Documentation for a Hard Money Loan: Tips for Investors
Applying for any real estate loan can take time. You have to find a reputable lender, gather documentation about yourself and the property you’re looking at, fill out an application, meet with the lender to discuss the loan, and more. If you’re not prepared, the process can take even longer. However, knowing what paperwork you need can speed things up. Today, we’ll review essential documentation for a hard money loan so you can stay prepared for your next investment.
Contents of This Article:
- How Do You Apply for a Hard Money Loan?
- Essential Documentation for a Hard Money Loan
- Other Hard Money Loan Requirements
- Find the Right Lender for Your Project Today
How Do You Apply for a Hard Money Loan?
The first thing you’ll want to do if you’re looking to get a hard money loan is look for a reputable lender. Once you’ve found the right company or individual to work with, applying for a hard money loan is quite simple–if you have all the necessary information and know your Baltimore hard money lender’s requirements.
Most hard money loan applications require basic information, including the following:
- Name and contact information
- Credit score
- Why you need the loan
- Address of the property you’re looking to finance
- Requested loan amount
- Purchase price of the property
- Current value of the property
- Estimated value after rehab (if applicable)
- Estimated repair costs
If you’re looking at Maryland Hard Money Lenders’ loan application, you’ll see that we ask a series of questions, including the following.
- Is this your principal residence?
- Are you currently in foreclosure?
- Are you currently in bankruptcy?
- Do you have any current loans on the subject property?
- Have you ever gotten a hard money loan before?
- How many fix-and-flips have you completed in the last 3 years?
- Do you have any other private or hard money loans?
Providing this information is the first step in getting a hard money loan. Once you’ve submitted a loan application that’s completely filled out, your hard money lender will coordinate a meeting to discuss more details. That said, you’ll want to come to this meeting prepared with the right documentation for a hard money loan. We’ll go over some of the things you’ll need below.
Essential Documentation for a Hard Money Loan
While your initial loan application gives your lender some basic information about you and the property you want to finance, they will want to see more. Lenders need more details about your ability to repay loans and the potential of the property you want to finance. As such, you must provide several documents once your application is approved. Some of the essential documentation for a hard money loan includes the following:
- Two years of tax returns
- Copy of the sales contract and any deposit checks
- Copy of your driver’s license or another government-issued ID
- Bank statement showing how much money you currently have
- Personal financial statement
- Detailed list of proposed repairs and draw schedules
- Labor and material costs for the repairs
- Contractor estimates or contracts
- Copies of any appraisals or inspection reports
- Copies of any corporate documentation (if applicable)
- Addresses of any cross-collateral property (if applicable)
If this seems like a lot of documentation to gather, that’s because it is. Hard money loans are more lenient in terms of requirements than traditional mortgage loans. However, hard money lenders still need to reduce risk by thoroughly evaluating the property you’re financing and your ability to repay the loan at the end of the term.
Other Hard Money Loan Requirements
Aside from the essential documentation you need for a hard money loan, your lender may have additional expectations to ensure the property is a good fit. No two lenders are exactly the same, so the requirements may differ. However, generally, hard money lenders have the following expectations and requirements.
- Clear Exit Strategy- Your exit strategy is among the most important factors a hard money lender considers. They want to see that you have a solid plan to repay the loan. Some common exit strategies include selling the property for profit after renovations, refinancing with another loan, or generating rental income to repay the loan.
- Real Estate Investment Experience- Your experience as an investor may influence a lender’s decision. For instance, if you’ve completed several fix-and-flip projects, lenders will likely view you as less risky. That said, they may request details about previous investments.
- Significant Down Payment- Hard money loans are different from traditional loans in many ways, including down payment requirements. Most hard money lenders require a significant down payment for the loan since qualification is based mainly on the property’s value instead of your creditworthiness.
- Proof of Property Insurance- To protect themselves, lenders generally require adequate property insurance. Before they fund a loan, they’ll likely want to see that you have coverage for the full replacement cost of the property.
- Detailed Project Timelines- Most of the time, your ability to repay a hard money loan depends on your project timeline and competition. Your lender will want to see when repairs will be made and when they’re finished so they know that your renovations are done on time. That said, contacting your lender is crucial if you run into any delays or issues.
Find the Right Lender for Your Project Today
Knowing the essential documentation for a hard money loan can help you stay prepared if you’re looking to invest in real estate. Gathering the right paperwork and documents can help speed up the process and fund your loan faster.
If you’re looking for the right lender for your next project, check out Maryland Hard Money Lenders. Our team has helped several investors complete successful real estate projects, including fix-and-flip, fix-and-rent, and fix-and-hold investments. So, contact MHML to learn more about our lending process or fill out our initial loan application today!
