You’re trying to invest in a new real estate project and you want a hard money loan. There’s good news and bad news. The good news? It’s usually easier to qualify for a hard money loan than a traditional mortgage. The bad news? “Easy” is relative. You need to meet fewer strict requirements, but you are going to have to put together quite a few documents.
Here’s what you need to get started.
Capital: What Are You Using for Your Down Payment?
Thoroughly document your capital. Unlike a traditional mortgage, they usually don’t care how you got your capital. But you should be able to show that you have the down payment liquid already. You can show this through your most recent bank statements.
Cash Flow: What Are Your Personal Income/Expense Statements Like?
In addition to your down payment, they also want to see your monthly cash flow. This usually comes in the form of bank statements. They should be able to see that you can easily pay for the loan payment, even if the project goes long. This is due diligence for your sake and for theirs.
Experience: What is Your Portfolio?
You’re basically starting a small, temporary business. So what have you done in the past that’s similar? You should show your portfolio of projects, as relates to home renovations, tenancy, property investments, and so forth. At minimum, you or your business partners should be well-versed in investing in real estate. Otherwise, how can they know that you’ll be able to pull off the project?
Housing Documents: What Are Your Projections for the Project?
This is probably the most extensive area, yet it’s the area that will most often differ. Different hard money lenders will have different requirements. In general, they will want to know:
- How much the property is appraised for.
- How much you intend to put into the property.
- How much contractors have bid for the related jobs.
- How much you stand to gain from the investment.
Some companies will want to see the basics; an appraisal and an inspection report, just like a mortgage company. But other companies will want a full business plan. Sometimes, it’ll depend on the amount of money they’re investing. And some lenders are just more conservative than others.
That’s a lot. But it’s less than it seems. Realistically, if you’re qualifying for a hard money loan, you need to get these documents in order anyway — these documents would be the foundation of your business plan.
Any questions? Reach out to IMCMoney today!