hard money loan

The fast-paced nature of the real estate industry pushes investors to have ready cash to seal the deal. Hard money loans are attractive alternatives to traditional financing options. Conventional bank mortgages involve many bureaucracies and red tape that can sabotage your fix-and-flip deal. On the other hand, hard money lenders provide ready cash with a less stringent approval process. Let’s talk a bit more about why these loans appeal to those in the house-flipping sector.


What is a Hard Money Loan?

Getting approved for a loan from traditional lenders can be a painfully slow process. You may have to wait for 45 days or more, with the financier going through your application with a fine-tooth comb. Sadly, over 68 million Americans have poor credit, which can make securing financing that much more difficult. A hard money lender offers a quicker turn-around, with less focus over borrower issues such as bad credit scores and past foreclosures. You may get your hard money loan approved in less than seven days, with some firms offering same-day approvals.

How To Get Your Hard Money Loan Approved

A hard money loan is an asset-based financing option — meaning the lender is primarily focused on the value of your property and the ability to finance the loan. With lesser bureaucratic demands, it is arguably easy to get your application approved. Here are three tips to guide you through the process.

1. Save Up for Your Down Payment
Far more often than not, hard money lenders will demand borrowers to have skin in the game. The main requirement for loan approval is having enough equity or cash for your down payment. The percentage points vary from one vendor to the next, with 25% for residential properties and 35% for commercial buildings being the average. A hard money loan application with a higher down payment is more likely to be approved than one with a minimum deposit. Save up to ensure you have enough cash before filing the application forms.

2. Showcase Your Investment Potential
Remember, the lender is more interested in the property’s value than your current financial position. You may need to show them that the property in your fix-and-flip deal has potential. Your loan approval may hinge on your ability to prove to the hard money lender that you can close the deal. It does not hurt to showcase your experience in real estate and expedite the approval. Have pertinent documents to support your renovation budgets and property value.

3. Draft An Exit Strategy
A hard money loan is a temporary solution for most real estate investors. Most lenders structure the loans with a timeframe of six to 12 months. If you fail to repay by then, you risk losing your property. The loan’s short-term nature means you will have a lump-sum repayment to make at the end of the agreed period. You need to establish an exit plan to protect yourself and the lender. However, this does not mean that you should be afraid of them. They are the best alternative whenever you have a real estate deal.

Hard money loans are excellent options for fix-and-flip investors who wish to grow their real estate portfolio. Ensuring that you secure approval for your application is the first hurdle that you may have to overcome. ARC Private Funding can offer you a hard money loan that fulfills your urgent cash needs. For more information on private money loans, call us today.