A hard money loan is a loan that’s based on the value of the property, not on the borrower’s creditworthiness. Hard money loans are usually short-term loans, lasting from one to five years. They’re typically used for rehabbing properties or for investment purposes. Here are the qualifications you’ll need to get a hard money loan.

1. Good Equity

When it’s time to get a hard money loan, the lender will want to see that you have some “skin in the game.” In other words, they’ll want to see that you have some equity in the property. Equity is the portion of the property’s value that you own outright. For example, if your property is worth $100,000 and you owe $50,000 on it, then you have $50,000 in equity.

2. Good Loan-to-Value Ratio

Your loan-to-value ratio (LTV) is another important factor that lenders will look at. The LTV is the loan amount divided by the property’s value. For example, if you’re borrowing $50,000 on a property that’s worth $100,000, your LTV is 50%. Banks will often accept a loan-to-value ratio as high as 97%, according to Realestate.com, but you’ll need a lower LTV to get a hard money loan.

3. Good Exit Strategy

When you take out a hard money loan, you’ll need to have a good exit strategy. That is, you’ll need to have a plan for how you’re going to repay the loan. Hard money loans typically have higher interest rates than conventional loans, so you’ll need to be sure that you can make the payments. One exit strategy is to refinance the property with a conventional loan once you’ve made some improvements and the value of the property has gone up.

4. Good Income

Even though a hard money loan is based on the value of the property, the lender will still want to see that you have a good income. That’s because they want to be sure that you can make the payments on the loan. So, be prepared to show the lender your income and your expenses. They’ll also want to see proof of employment.

If you’re looking for a hard money loan, get in touch with Arc Private Lending. We can help you get the financing you need to rehab your property or make a real estate investment. Give us a call today to get started on obtaining a money loan for your investment!