The 6 Big Requirements for a Hard Money Loan
In terms of how to qualify for a hard money loan, there are a few core eligibility rules to remember. You can’t forget having a low LTV ratio, all the documents needed, and other essentials. Read below to make sure you’re covered.
Requirements for a Hard Money Loan: Main Takeaways
- Key requirements for a hard money loan include a high credit score, good collateral property, low loan-to-value, and debt-to-income ratio, and demonstrated real estate investing experience.
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How to Qualify for a Hard Money Loan
The requirements for a hard money loan, like a Baltimore hard money loan, are as follows. To qualify, meet these criteria:
1. 
Have a High Credit Score
One of the biggest hard money loan requirements is a high credit score. Hard money lenders want to be sure you can pay your loan off, and building a stable financial history is the best way to prove that.
As a reward for having good credit, you also could access better hard money loan terms. Some lenders offer up to 100% financing for borrowers with great credit scores. It’s a win-win!
2. Have a Good Collateral Property
Hard money loans use properties as collateral. So, whether it be a property you already own or one you plan to buy, having one in mind is one of the most basic requirements for a hard money loan. You really can’t get a hard money loan without it.
Also, the property should either have a high current value or a high estimated after-repair value. This shows that the collateral property is, or could be, profitable. In addition, it helps your lender calculate your interest rates and loan terms.
3. Make a Low Loan-to-Value Ratio
A low loan-to-value (LTV) ratio is also crucial for loan eligibility. A loan-to-value ratio measures your property value against your requested loan amount. In other words, it represents how much of your property’s overall value the lender is investing in.
The lower your loan-to-value ratio, the less of your overall property value the lender is covering. This makes their risk lower. As such, if your requested loan amount is leagues larger than your property value, you may want to rethink that amount.
4. Retain a Low Debt-to-Income Ratio
Just like your LTV ratio, your debt-to-income (DTI) ratio should be low. This ratio measures how your income would compare to your monthly loan payment plus any current costs of living.
Again, the lower your DTI ratio is, the less of a dent your loan payment would make on your overall income. It shows that you have enough wiggle room to still repay the loan if unexpected costs happen.
5. Show Your Real Estate Investing Experience
One of the other biggest requirements for a hard money loan is having real estate investment experience. Put simply, you should demonstrate that you know how to navigate the ropes of the business for successful results.
You can accomplish this by giving the lenders your asset history. For example, you could prepare proof of your property portfolio, stocks, and other assets. Also, you could describe to them what exactly you will do to repay the loan. To finish it off, address potential obstacles head-on and explain how you’re ready for them.
6. Have Application Process-Related Documents Ready
There are certain documentation requirements for a hard money loan. The information lenders ask for varies. For reference, our company, Maryland Hard Money Lenders, usually asks for these papers:
- Personal Information: Two years of tax returns, bank statements, a copy of your driver’s license, a personal financial statement, a copy of your corporate documentation (if you’re an entity borrower), cross-collateral property addresses
- Basic Property Information: The property’s location, size, condition, and appraisal or inspection reports
- Property Plan Information: Proposed repair and schedule lists
- Property Financial Information: Property’s purchase price, projected numeral value, sales contract, deposit checks, contractor estimates for repairs, and any other related costs you have spent or want to spend in the future
What Does the Hard Money Loan Approval Process Look Like?
Now that you’ve learned how to qualify for a hard money loan, you can finally apply. Let’s walk through the 4 steps of doing that:
1. Initial Application: First off, get your foot in the door by submitting your initial application. In this early stage, the lender will want to get a grasp of your basic background. Here, they may ask for some personal information, as well as info about the property you plan on using as collateral. Additionally, they likely will want to know your requested loan amount. With all this, they can learn more about you and your project.
2. Underwriting and Approval: At this juncture, your lender will weigh the property’s value, risks, and market conditions that can impact it. They may do this through property appraisal. Also, they will investigate your financial history.
There are two main goals in this underwriting stage. One is to examine whether your project is prepared for success. Secondly, they want to assess how well you’ll be able to repay the loan. If you pass these hard money loan requirements, the lender will give you conditional approval. This may involve a final underwriting pass later.
3. Loan Term Settlement: At last, your loan application has gotten the go-ahead! You just need to pore over the loan terms to make sure they’re suitable. This is where you ensure the given loan amount, interest rate, other fees, and repayment timeline are doable for you. Make sure everything is ironed out before moving forward.
4. Close on Your Loan: Last but not least, sign the dotted line, take care of closing costs, and pay your down payment (if applicable). All that’s left is to wait a few days or weeks for your funding!
Get Premium Hard Money Loan Terms with MHML Baltimore
Key requirements for a hard money loan include a high credit score, good collateral property, low loan-to-value, and debt-to-income ratio, and demonstrated real estate investing experience. By meeting these hard money loan requirements, you can unlock these loans’ benefits quickly.
If you want hard money loans from a reputable, local lender, Maryland Hard Money Lenders is here to help. Our professionals can offer you expert customer service, backed by years of experience in the real estate industry. Better yet, we can work with you to tailor the terms to your project’s unique needs. Best of all, if you’re an experienced investor with sufficient collateral and good credit, we may be able to offer 100% funding. So, call us today to get funded fast!
