10 borrower characteristics that should be considered while underwriting a hard money loan

Real Estate provides the collateral for most hard money loans however there are many borrower characteristics that should be considered while underwriting a loan.  One of the best ways to avoid fraud and determine if a Hard Money Loan makes sense is to meet the borrower.  If you are a borrower, you might want to think about these items before your lender meeting and if you are a lender you might consider some of the guidelines during borrower meetings:

  1. Skin In the Game: Does the borrower have substantial equity in the property or are they putting in a down payment of 30%-40%
  2. Track Record of Performance: What is the borrower’s track record of performance on previous hard money loans and real estate investments?  If the borrower is a real estate investor, ask if they have successfully flipped houses before and made a profit?
  3. Pride of Ownership: On a cash-out loan check to see if the property is well maintained.  A property in disarray shows a lack of caring that may extend to making timely payments.
  4. Does the Story Line Make Sense:  Does the loan scenario add up?  Who owns the property now?  Validate that the Borrower knows the property, comps and After Repair Value.  What are the liens on the property and why are they there?  Where is the down payment coming from?  What is the purpose of the purchase or refinance?
  5. Verifiable Data:  If the FICO is lacking, does the credit explanation make sense?  If the property is non-owner occupied, can the borrower provide a lease agreement and substantiate his/her own principal residence?  It is always important to check and double check the validity of the facts and scenario presented.
  6. Borrower Identity: Make sure to understand the roles of the different parties to a transaction.  If the borrower is a company, make sure the Executive is authorized to sign.
  7. Borrower Appearance and Responsiveness:  Does the borrower appear responsible?  Does the borrower send in the information requested on a timely basis?
  8. Ability to Pay: Validate that the Borrower can make the monthly payments and has residual income to pay the mortgage besides the rental income.
  9. Concerned about Loan Amount and Fees?  It is a good sign when a borrower is trying to get a lower purchase price or is negotiating fees.  This concern is an indicator that the borrower will try to make the payments.  A disregard for transaction costs may indicate that the borrower never intends to pay.
  10. Exit Strategy:  Can the property be sold for the suggested After Repair Value?  Is the planned credit repair viable? Has the employment and or income situation changed to facilitate an exit?

Mortgage Vintage, Inc. spends time to meet borrowers and see the properties on prospective loans.     These borrower meetings help to ensure healthy transactions for both the borrower and lender.