Hard Money Lenders for Beginners 101: How to Get a Hard Money Loan

When it comes to how to get a hard money loan, there are certain things you must do to apply and qualify. So, let’s go through a crash course in working with hard money lenders for beginners below.

Main Takeaways:

• To apply for a hard money loan, you should assess your finances, prepare your proposal, submit your application, undergo underwriting and approval, get the loan terms and conditions, close the loan, and do the repayment process.
• Hard money loans tend to have more flexible and customizable requirements than traditional lenders do. Also, some hard money lenders may offer you higher loan amounts than traditional lenders do.
• You can qualify for a hard money loan by using your property as collateral, having an exit strategy, being experienced or well-researched in real estate, having a down payment ready, and having proof of income.
• The different types of hard money loans are house flipping loans, construction loans, bridge loans, rental property loans, and commercial loans.

Table of Contents

• How to Apply for a Hard Money Loan
• How Easy is It to Get Loans from Hard Money Lenders?
• How to Qualify for a Hard Money Loan
• How Much Can You Borrow from Hard Money Lenders?
• The Different Types of Hard Money Loans

How to Apply for A Hard Money Loan

You can be ready for your negotiations with hard money lenders by following the below steps. Our Baltimore hard money lending team recommends you check each off, one by one:

Look Through Your Finances

Hard money lenders place primary focus on your property’s value as collateral. That said, they could still examine your finances to make sure you’ll be able to repay your loan.

As such, although your credit history isn’t the biggest factor at hand, you’ll still want to make sure it’s decent. To paint a picture, it should be at least in the 600 range. Furthermore, you would benefit from a low debt-to-income ratio and a good repayment history.

Develop Your Proposal

At the negotiation table, you should be ready with a detailed business plan. With this, we mean your timeline, budget, and estimated profit. In addition, you should back up your presentation with all relevant documents, such as the permits you’ll need, contractor estimates, and other info.

In the end, your proposal should map out how actionable and profitable your project will be. By doing this, you can accelerate your loan approval.

Submit Your Loan Application

At this point, you should submit your loan application. This is the time to get all your ducks in a row and make sure you’re ready for any information the lender may request.

Undergo Underwriting and Approval

Here, your hard money lender will look over your materials.

Then, they’ll weigh your project’s likelihood of success and your ability to repay the loan. This could involve an evaluation of your property’s value, its risks, and surrounding market conditions.

If your application meets the lender’s criteria, you’ll receive conditional approval, which may be subject to final underwriting.

Get the Loan Terms and Conditions

Finally, you’ve made it: your loan application has been approved!

Now, it’s time to simply go through the routine procedures. Your lender will provide you with the loan terms and conditions, such as the interest rate, loan amount, fees, and repayment schedule. You should review these terms, clause by clause, thoroughly before agreeing.

Close the Loan

Once you accept the loan terms, you have to sign and provide all relevant documents. Then, voila! Without further ado, you can start using the loan funds for your project.

Do the Repayment Process

For this step, you must repay your loan as outlined in your loan agreement terms. It’s critical to plan and budget your loan payments so that you don’t default on the loan and lose your property collateral.

How Easy is It to Get Loans from Hard Money Lenders?

It can be simple and straightforward to apply for a hard money loan. They are known to have less stringent requirements and quicker approval processes than traditional loans.

Furthermore, because hard money lenders are oftentimes independent companies, they can work directly with you to customize terms that work for your unique background, project plans, and other circumstances. In other words, they’re not hampered by the bureaucratic tape that bigger establishment banks are.

You will need to have the usual basics on hand, like a down payment, proof of income, an exit strategy, and other mainstays we’ll delve into later.

How to Qualify for a Hard Money Loan

You should sharpen your skills in the following aspects moving forward. This way, you can be a better borrower to hard money lenders:

Collateral Value

Hard money lenders will primarily examine your property as collateral when determining your loan eligibility. They want to be sure your property has sufficient equity to cover the amount of your loan. To do this, they will consider your after-repair value and loan-to-cost value, as mentioned before.

Exit Strategy

Lenders need to be in the loop about how you plan on repaying your loan by the end of its term. Because of that, you need to have your path toward profitability ready. This could include selling the property, renting it out, refinancing it, or other methods. Having this plan forward shows the lender that they are minimizing risk.

Borrower’s Real Estate Background

Your lender will want to rest assured that you know what you’re doing with your investment. And the easiest way to prove that is by demonstrated experience. However, if you are new to the real estate industry, you have ways to show your mettle. Be extra sure you educate yourself on the industry and have a solid, well-thought-out, airtight plan that will win over lenders.

Down Payment

Hard money loans typically require a down payment. This could be significantly higher than for a traditional bank loan. After all, hard money lenders are pouring a lot of money into your project, possibly more than a traditional bank would, and want to minimize risk from doing so.

As such, before you start your search for hard money lenders, make sure you have enough funds saved for a large down payment. Depending on your real estate experience, hard money lenders generally ask for rates starting from 20% of your property’s sticker price.

Proof of Income

As stated before, hard money lenders take on a risk when they lend you their money. So, they will want to know if you can pay it back within a reasonable period. Due to this, they could ask you for your proof of income before they hand over your loan. If you provide this, you could be approved faster.

Proof of income could mean a variety of things, from tax returns, pay stubs, W2 forms, and bank statements.

How Much Can You Borrow from Hard Money Lenders?

Many hard money lenders will give you up to three-quarters of your property’s value. Furthermore, the Loan-to-Cost ratio (costs of the whole project), the loan-to-value ratio, and the after-repair value matter. All these calculations can impact how much your lender is willing to offer.

The Different Types of Hard Money Loans 

Depending on your investment strategy, you can consider different types of loans.

House Flipping Loans

Fix-and-flip loans allow investors to buy a property cheaply, renovate it to increase value, and resell it for a higher rate. These loans are a good fit for investors who want to go through the fix-and-flip process efficiently, say, within 6 to 18 months.

Construction Loans

Hard money construction loans exist to fund new development projects faster than traditional financing can accomplish. They are designed for people who can’t wait months for funding to cinch deals, and who need expedited loans.

Bridge Financing

Bridge loans fill the funding gap. They hold the fort down in your business as you wait for long-term financing. For example, if a current property hasn’t been sold yet, that can halt your plans to use the sale to buy and lease out a new property. So, you would use bridge financing to secure the new property for now. Then, when your property sells, you can go ahead and prepare it for tenants.

Rental Property Loans

Next, you can use hard money loans to purchase rental properties. Such a strategy is especially useful for investors who don’t qualify for traditional funding, whether it’s because of their credit score or needed loan amounts.

On that note, if you’re using hard money loans for rental properties, know that hard money loans can have higher interest rates than traditional loans. Such policies serve to mitigate lender risk and deliver loans faster. Nevertheless, this may make hard money loans a better fit for project needs with a short time frame.

Commercial Loans

People use hard money commercial real estate loans to, as you can guess, fund commercial real estate. You can use these for various investment types, such as multifamily, office, retail, and industrial properties. Plus, they have higher limits for bigger projects.

Best Hard Money Lenders for Beginners

Knowing is half the battle. In that vein, knowing how to apply to and qualify for a hard money loan can enable you to have a stronger hand at the negotiation table.

After you’ve done your due diligence, you can save for a down payment and find a hard money lender near you.

If you’re looking for experienced hard money lenders, look no further than Maryland Hard Money Lenders. Our qualified professionals can help you determine the best loan and rates for your real estate investment. Contact us to learn more about the loans we offer and apply for a hard money loan today