Hard Money Loan and Credit Qualifying
By: Louis Jeffries, Current Not yet Rated

Hard Money Loan Product.

As a real estate investor there may come a time that it is to your advantage to get a Hard Money Loan (HML, bridge loan, private financing or equity based loan) for a transaction that you can not get financing from a conventional lending. Even if the rate and fees may be higher on equity based real estate investment property financing, these programs may still be better for you even if you qualify for conventional funding. These short term bridge loans are flexible and can help you fund "HOT" real estate investment transactions utilizing creative financing strategies which are unacceptable in standard lending. The objective is to make money. Private money real estate investment financing is created for that purpose. They help the borrower make money as well as the lender, with as little red tape as possible.



How to Qualify for a Hard Money Loan.

The underwriting by HML lenders is different from conventional. Yet the criteria reviewed is the same. Basic underwriting reviews the 4 C's of credit. They are Collateral (property), Capacity (ability to pay), Credit (credit score and history) and Character (experience and subjective underwriting). Each guideline is reviewed from a different perspective based on the program. Let us compare the two.

Collateral.

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Both conventional financing and equity financing underwriting guidelines place a heavy emphasis on the collateral for the loan, which is the property. From a conventional perspective the value is always based on the lower of the purchase price or the appraisal. Another critical underwriting guideline is ownership seasoning (how long the owner has owned the property). Standard guidelines view the value as the lower of the appraised value or purchase price for the first 12 months of ownership. A Bridge Funding Lender will consider the After Rehab Value as well as the purchase price. As such a conventional lender may lend 80% of the value to an investor while a HML lender only lends 65% of the ARV. The 65% may actually be higher.

Capacity.

This is the borrowers ability to pay. For the traditional investor loan the lender underwrites the gross income and compares that to the long term debt to determine if the borrower can afford the payment based on preset debt to income ratio requirements. Where the bridge loan lender underwrites a loan request they want to make sure the borrower has a solid exit strategy (ability to pay the loan off completely). If the lender requires monthly payments they will underwrite income to insure the borrower has the ability to make payments. The ability to repay the loan is important in both situations because all lenders want their money back to make more loans. Contrary to popular belief Private lenders do not want the property. If they did they would just invest in below market distressed property. They have the money. No, they are in the loan business. They make money by lending short term funds and reinvesting the profits to make more short term loans.

Credit.

While excellent credit is essential to a convention financing source it is not so important to a Hard money lender. If your want to keep the property for rental purposes the HML Funder will underwrite your file to conventional guidelines to ensure you qualify to refinance the property. But if you are going to sell, they are more concerned that you have a buyer that qualifies to buy the property. This goes back to the importance of a solid exit strategy.

Character.

Conventional lending really do not make personal character determinations about a borrower. They only look for compensating factors like time on the job and stability factors. Savings and assets very important. For a bridge program, the lender can talk to the borrower, review their experience and they have much more flexibility based on their feel for a borrower. After all this is private money and no one can dictate who the lender will lend their money to when it is for business and investment purposes.

Real Estate Investor.

With this information in hand a real estate investor can know where they need to improve to guarantee success of their investment projects. If you are in the business of buying and rehabbing investment property, whether commercial or residential it is important to prepare yourself for financing. Access to capital is a very important part of the success of any business, especially that of a real estate investor. Hard Money Loans will help you have a very profitable business.

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As a Mortgage Banker for 20 years I have been able establish relationships with private investors who make hard money loans for residential and commercial projects. If you require financing for your real estate investment deals, whether commercial or residential contact me at Hard Money You can also email me a louisj@alldominionmortgage.com

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