Hard Money Lending Criteria
When you are looking for an alternative to a traditional mortgage, a hard money loan may be an option. Hard money lenders do not use the same lending criteria as traditional commercial banks. Understanding how these lenders make their decisions can help you improve your chances of getting approved for a loan.
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Loan-to-Value Ratio
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The loan-to-value ratio is one of the most important factors that hard money lenders look at. The loan-to-value ratio compares the value of the property with the amount of money that you want to borrow. Hard money lenders typically have very low loan-to-value ratios. For example, they might only give you 60 percent of the money you need to borrow. By doing this, the lender can foreclose on the property and be sure to at least get their money back out of the property.
Credit History
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Even though a hard money lender may not be as strict as a traditional lender with credit history, the lender will still usually evaluate your credit history. The lender gets permission to look at your credit profile and looks payment history to ensure you have a history of making payments on time.
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Income
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The hard money lender may require a certain amount of income from you. You have to be able to afford monthly payments on the loan. If the loan is for a rental property, the hard money lender may want to see enough monthly income to make a primary mortgage payment as well as the monthly payment for the hard money loan.
Collateral
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Hard money lenders look at the condition of the collateral. In some cases, the lender might even require other sources of collateral besides just the property to guarantee the loan. For example, if you have multiple pieces of real estate, the lender may want to have you put up a piece of property unrelated to the property being purchased with the funds from the loan.
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