4 Steps to Qualify for a Hard Money Loan


Many top Mortgage Brokers that specialize in conventional lending refer quality Hard Money Loan opportunities to a Hard Money Lender.  How does a Conventional Mortgage Broker know if they have a good hard money loan opportunity?  Follow these 4 steps for qualifying a Hard Money Loan:

1. Determine the Borrowers Need for the Loan:

There are many loan scenarios that require Hard Money.  Funding timing, lack of conventional credit availability, additional leverage, short loan term requirement, self-employment and personal credit issues are just a few reasons that Hard Money rates may be palatable.

2. Equity in the Property or Down Payment:

Typically a minimum of 35%-40% equity or down payment will be necessary in order to qualify for a Hard Money Loan.  This equity and “skin in the game” provides equity protection to the lender should payment or default issues arise.  In some cases on Fix and Flip loans, less Down Payment is required when the Rehabber will be providing their own funds for the Rehab.

3. Ability to Pay:

The “Ability to Pay” hurdle is now well defined in the consumer lending arena and is also an important criterion in determining the suitability of a Hard Money Loan.  The borrower has to have the wherewithal to make the monthly payments on the mortgage and the ability to pay off the loan at the end of the term.  Rental Income, employment income, investment income, and Bank Account velocity can all be used to determine the Ability to Pay.

4. Exit Strategy

Typically, Hard Money Loans for Real Estate Investors have a Balloon Payment at the end of the 1, 3 or 5 year term of the loan.  Make sure that the borrower has a plan or strategy or ability to pay the loan back at the loan maturity.  Selling the property, obtaining a refinance or paying off the property with the proceeds from another investment are all viable strategies to satisfy the Exit Strategy requirement.

Quickly qualifying a loan scenario is more of an art than a science.     Choosing a Hard Money Lender to help quickly qualify a mortgage brokers hard money loan scenarios will help that professional earn more income, save time and increase customer satisfaction.