How to Get Your Hard Money Loan Approved

Hard money loans can be an excellent tool for investors who want to buy properties quickly and efficiently. However, if you plan on applying for one, knowing what you’ll need to do to get approved is essential. Today, we’re reviewing typical requirements, how to get your hard money loan approved, and what to do if you’re denied. 

Contents of This Article: 

• What Are Typical Hard Money Loan Requirements?
• How to Get Your Hard Money Loan Approved
• What Happens If You Get Denied a Loan 
• Find the Right Lender for Your Investment Today

What Are Typical Hard Money Loan Requirements?

Every lender is a bit different regarding their requirements, but there are a few things they’ll typically look for. Here are some of the main things you’ll need to provide if you’re looking to get a hard money loan. 

• Collateral- Hard money loans are asset-based, so your lender is going to put most of their consideration into the property you’re using as collateral. Typically, they require a loan-to-value (LTV) ratio of 60% to 75%.
• Down Payment- Most lenders require a significant down payment, at least 20% to 30%, on a property purchase.
• Loan Purpose- Most investors use real estate loans in Maryland for specific investment types, like fix-and-flip projects, rental property purchases, construction projects, or bridge loans.
• Credit Score- While hard money lenders don’t necessarily base lending decisions on your credit score, it still helps to have a score of 600 or above.
• Experience- Some lenders prefer working with experienced real estate investors, especially when it comes to fix-and-flip or construction loans. You can still get a hard money loan as a new investor, but may have a higher interest rate.
• Exit Strategy- Lenders must see a clear plan on how you’ll repay the loan, whether you want to sell the property, refinance, or use rental income to pay it off.
• Proof of Income- Every lender has different requirements, but some may want proof of income or bank statements to ensure you’ll be able to repay the loan on time.
• Documentation- Finally, you’ll need to provide various documents to get a hard money loan. These include a valid ID, tax returns, proposed repairs and timelines, purchase agreement, property appraisal or valuation, and business entity documents.

How to Get Your Hard Money Loan Approved

While the process of getting a hard money loan is extremely fast compared to other loan types, there’s a lot that goes into it. That said, if you want to get your hard money loan approved as fast as possible, it’s important to be prepared with the correct information. It’s also crucial to find a lender that specializes in your investment type and has experience lending to similar investors. Here are some tips for staying prepared and getting your loan approved. 

1. Choose the Right Hard Money Lender
2. Have a Strong Investment Property
3. Prepare a Solid Down Payment
4. Show a Clear Exit Strategy
5. Improve Your Creditworthiness
6. Highlight Your Real Estate Experience
7. Have Your Documentation Ready

Choose the Right Hard Money Lender

First things first, you’ll want to find a reputable lender specializing in your project type. For instance, if you’re looking to buy a distressed property to fix and sell for profit, you’ll want to find a lender who offers fix-and-flip loans. Look carefully at their reviews as a lender to ensure they have transparent terms and fees and offer competitive interest rates. 

Have a Strong Investment Property

Finding the right property to invest in is key. After all, since hard money loans are asset-based, you’ll want to have a property with strong resale or rental potential. You’ll also have to meet your lender’s loan-to-value (LTV) ratio requirements, which usually range between 60% to 75%. Getting an inspection and appraisal can help you determine whether the property is worth investing in or not. 

Prepare a Solid Down Payment

Investors want to see that you’re invested in your project. Most expect higher down payments than other loan types, so prepare to put down around 20% to 30% for property purchases. If you’re refinancing an existing property, they may want to see around 30% to 40% equity. Remember, a larger down payment can increase your chances of approval and potentially lower your interest rate. 

Show a Clear Exit Strategy

Hard money lenders need to know how you plan to repay the loan within the short term (usually anywhere from 6 months to 2 years). That said, some of the most common exit strategies include: 

• Selling the property for profit after renovations (fix-and-flip)
• Refinancing into a traditional mortgage
• Generating rental income to cover the loan

The more thought out and realistic your exit strategy is, the less risky it is for your lender, which can increase your approval odds. 

Improve Your Creditworthiness

Although hard money loans don’t rely heavily on credit scores, a higher score can help secure better terms. Most lenders prefer a score of at least 600. However, lower scores may still be accepted. If you want to increase your chances of approval, consider paying outstanding debts, avoiding new credit inquiries, and resolving any delinquencies on your credit report. 

Highlight Your Real Estate Experience

Most experienced investors have an advantage in getting approved for a hard money loan. So, if you’ve completed successful projects in the past, show your lender your portfolio. Make sure to include before and after photos for fix-and-flips and profitability breakdowns of previous deals. If you’re a new investor, consider getting a partner for your first deal to reduce risk for your lender. 

Have Your Documentation Ready

Knowing which documents you need and having them ready can help you get your hard money loan approved faster. If you’re working with Maryland Hard Money Lenders, you’ll need the following pieces of documentation. 

• 2 years of tax returns
• Copy of the sales contract and any deposit checks
• A copy of your driver’s license
• Bank statements
• List of proposed repairs and draw schedules
• Material and labor costs
• Contractor estimates or contracts
• Copies of appraisals or inspections
• Copies of your corporate documentation
• Addresses of any cross-collateral property

What Happens If You Get Denied a Loan?

Being denied a hard money loan can be frustrating, but it doesn’t mean you’re all out of options. It’s essential to understand why you were denied so you can take the proper steps to secure financing in the future. Here’s what you can do if your hard money loan application gets rejected. 

• Find Out Why Your Loan Was Denied- Hard money lenders may deny your loan application if the property doesn’t have enough potential, you don’t have a strong exit strategy, or you don’t provide a big enough down payment.

• Ask If You Can Reapply- If your loan was denied, don’t be afraid to ask your lender if you can reapply. Make sure you know why it was denied and see what you can do to increase your chances of approval.
• Improve Your Loan Application- Depending on why the lender denied your loan, you may need to increase your down payment, work on a better exit strategy, or fix any issues with your credit.
• Consider Alternative Options- Even though you get denied by one lender, you may still qualify elsewhere. You can try to apply with another hard money lender, private lender, or more traditional lending options.

Find the Right Lender for Your Investment Today

If you want to get your hard money loan approved, the first step is finding the right lender. It’s important to have a reputable lender who specializes in your investment type. Make sure they have good reviews and testimonials from previous clients. 

If you’re looking for a hard money lender near Baltimore, look no further than Maryland Hard Money Lenders. Our team of real estate professionals can help you get your loan funded quickly and efficiently. Contact us today to learn more about our lending process, or fill out our initial loan application today.