Hard money loans and private lending facilities are a darling to most real estate investors. They are the quickest way to secure funds to finance the sweet fix and flip deals. Traditional mortgage lenders have a frustrating bureaucratic process before loan approval that can make you lose out on the property you like.
Hard money loans are asset-based financing options that guarantee quick approvals, despite your low credit scores. But, what do you need for private lending approval? Atlanta, GA, has over 50 hard money lenders offering loans within the city. Each private lender may have its requirements before approval. So, what do you need for private lending?
Here are three common factors that most Atlanta hard money lenders consider before approval.
1. Equity for Your Down payment
Far often than not, your hard money lender will require you to have some “skin the game.” This reduces the risk of defaulting on your payments as you risk losing out on your down payment. Most hard money lenders in Atlanta require a 25-30% equity on residential properties and 30% to 40% on commercial ones. Refinance loans may have a loan to value ratio of 70%.
You may need to save up for your down payment to increase the odds of your loan approval. Additionally, you can opt for a cross-collateralization model where you can use multiple properties to secure your hard money loan.
2. Exit Strategy
Hard money loans are often short-term facilities lasting between six to twelve months. However, you may also access loan options of up to 36 months. The short-term nature of private financing means that you need to make a huge lump-sum payment after the maturity of your loan. As such, hard money lenders may want to see your exit strategy for the loan issued.
You may decide to go with selling the property and using the proceeds to pay back the loan. Using a self-amortizing loan can help you pay the principal and interest with regular, scheduled deposits, clearing the balance within the loan term limit. You can also pick out a traditional mortgage to refinance the hard money loan after ironing out the issues that barring you from accessing one.
Subprime loans are another popular option. However, you may pay higher interest rates than conventional mortgage loans. If you exhaust all options, you can opt for another hard money loan. Most borrowers often choose a blend of exit strategies to help increase their odds of getting a positive outcome.
3. Experience
You may need to show your lender the investment potential in financing your deal. Remember, your private lending company is more interested in your property’s value than your credit history. You may need to prove that you can close the deal before getting approval for the fix and flip loans.
Your number needs to make sense. The best hard money lenders can sniff out cooked figures, throwing out your application. It doesn’t hurt to showcase your experience in the industry by providing accurate figures, which may tip the scales in your favor.
“What do you need for private lending?” is a common query among the lips of most hard money borrowers. Your equity, exit strategy, and real estate experience may come in handy in convincing your lender to approve your application. For more information on hard money lending in Atlanta, GA, contact Realty Resources Corporation.