How to Prepare for a Hard Money Loan

Learn what to expect before applying for short-term private financing.

Hard money, as you probably already know, is a source of financing for many types of commercial properties and projects. A hard money loan is issued by an investor (or investment group) and while these loans are typically accompanied by higher rates, the advantages are numerous when compared to traditional lending. Think: flexible term structures, fewer rejections and the sheer speed the loan is processed—just to name a few.

If it’s sounding like hard money may work for your next property, it pays to be prepared. Follow these tips to make sure you’re ready to apply for your next hard money loan.

Come with a project

While private lenders prefer borrowers with experience in the commercial real estate market, having successful projects under your belt isn’t the only qualifier. Be ready to present the circumstances of your plan in a clear and organized fashion. What is the potential value of the property you want to purchase? Look into the history of the location and neighborhood and get prepared to prove the property and location are a safe investment.

Come with plan

When you start talking to a private lender about a hard money loan, a detailed, well-documented loan package is vital to making an underwriting decision. Typically, lenders will run a credit report, require two years of tax returns, as well as request various financial statements (bank, investments, proof of credit/assets/liabilities). It should be noted that the documents required will be unique to the type of loan and each borrower’s personal financial situation.

That being said, some commonly requested information includes:

  • Borrower tax returns
  • Financial statements
  • Information on owned properties
  • Contingent liabilities of the borrower
  • Construction loan sources and uses
  • Cost estimates
  • Full project plans
  • Engineering specifications

A helpful hard money lender will assist you with the loan application as well as the Statement of Information (SI), a document that helps the title company evaluate your application.

Come with cash

We won’t blow smoke at you—the primary requirement for attaining a hard money loan is the equity you’re investing in the property. The lowest amount for commercial properties is typically 30 – 40%. The larger the down payment the lower the risk (for the lender)—and the more likely the loan will be approved.

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