If you are an investor who needs to borrow hard money, and you’ve never done it before, you’re most likely wondering what the requirements are to take out this type of a loan. This guide explains the requirements for a hard money loan so you understand the basics before you get in touch with the lender.

What Are the Requirements for a Hard Money Loan? 

First things first: a hard money loan is a short term loan that typically offers a higher interest rate than a conventional mortgage would. Many investors use these types of loans to purchase properties at a low price, fix them up and sell them at a profit. They’re very beneficial to these types of investors because they can be funded very quickly (sometimes in a matter of days) and because they use the property itself as collateral. They’re also useful when investors need extra cash to make repairs before selling a property, because they let you borrow against a home’s after repair value.

The requirements for a hard money loan include:

  • Adequate documentation
  • A down payment
  • Overall financial strength

Here’s a closer look at each. 

Related: Hard money loan FAQ

Hard Money Requirement #1: Adequate Documentation 

When you want to take out a hard money loan, you’ll need to provide your lender with adequate documentation. That means you have to show what you’ll repair, as well as your anticipated after repair value for the property. You may also need to show financial statements, a purchase offer and other documentation that your lender requires. The best way to find out what kind of documentation you’ll need to borrow a hard money loan is to get in touch with a hard money lender. You can call our office at anytime to ask questions period will be happy to give you the guidance you need.

Related: 3 tips for buying distressed properties

Hard Money Requirement #2: A Down Payment

Generally, you need a down payment to borrow a hard money loan. Your down payment will most likely be lower than it would be with a conventional loan, though. Like conventional loans, your down payment will be based on the value of the home – but generally, it’s based on the after repair value, not the sales price.

Related: Should you use hard money to buy a distressed property?

Hard Money Requirement #3: Overall Financial Strength

Any hard money lender will want to look at the overall financial strength of the deal before lending you money. That means if it doesn’t appear you’ll be able to sell the home at a price high enough to repay the loan, you’re not likely to be approved. Your lender will evaluate your situation on its own merits, and there’s no one size fits all answer to whether a deal will be approved or not.

Do You Need a Hard Money Loan?

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