A hard money loan is a type of financing that uses the borrower’s property as collateral. This form of lending is typically used to finance real estate projects such as purchases and renovations. Hard money loans are often faster and easier to obtain than traditional ones, but they also come with unique requirements and much higher interest rates.
Before applying for a hard money loan, it’s important to understand the requirements and ensure you have all the necessary documents to avoid inconveniences.
Before discussing the requirements needed, it’s important to define a hard money loan. A hard money loan is a short-term, asset-based loan that provides funding based on the value of the property being used as collateral. The term “hard” in “hard money” refers to how a physical asset backs the loan. If the borrower cannot repay the loan, the lender can take possession of the asset to recover their losses.
Hard money loans are typically considered to be riskier than traditional loans and come with higher interest rates.
Hard money loans are an option for commercial or investment borrowers who have been denied a loan or mortgage or who want to avoid the long process of getting approved for a traditional loan.
When it comes to securing a hard money loan, lenders will typically require the following:
To be eligible for a hard money loan, you must have equity or a sufficient down payment in a particular property that will serve as collateral. The minimum amount required may differ depending on whether it’s a residential or commercial property, usually ranging from 25% to 30% for residential and 30% to 40% for commercial.
To fulfill the next requirement, you must show that you have sufficient available cash. Quick lending assesses your financial capabilities, including available cash, to provide you with a hard money loan. This is done to ensure that you can cover your monthly payments and any holding costs comfortably.
The required amount of cash for each loan may vary, but you can estimate it by calculating six months’ worth of payments and adding one-third of the repair costs.
Your credit score will be considered, but it is less important than other factors, such as your equity in the property or your cash availability. Some lenders may even require no credit checks at all.
Getting a hard money loan does not require a strong credit score to secure the loan.
Hard money loans are ideal for borrowers who need quick financing and have enough equity in their property. However, it is important to understand the requirements associated with hard money loans before looking for a lender. If you can provide the necessary documents and meet the minimum criteria, you could be approved for a hard money loan.
At First Funding, we provide competitive rates and simplify the entire process. Our experienced team is here to help you secure your residential real estate investment. First Funding can assist you with investing in various properties such as single family homes, multi-family residences, and raw land.
As a reliable hard money lender for residential real estate in Texas, we can help you. Contact us today to learn how our services can help you fund your investment project!