Wednesday, October 17, 2012

Hard Money Lenders – The Common Policies You Need to Know

Finance - Financial injection - Finance
Finance - Financial injection - Finance (Photo credit: @Doug88888)
Before you apply for hard money loans, you need to make sure you understand your lender’s policies and underwriting procedures. Most of the lenders have these policies on their websites. Here are the sorts of things you might expect to find… 

Borrower down Payment 
Generally, the finance providers will expect you to put at least 20% down. Most borrowers are required to put down 25%, although those who need $250,000 or more in funding may be required to put down 30% or even more, depending on the lender’s underwriting procedures. Keep in mind that this is cash equity, not “created equity” such as a commission carry-back. 

Loan-To-Value Percentage 
You may be able to secure up to 100% of the funding you need. However, generally the finance providers won’t finance more than 60% of the value of the property. This is referred to as the LTV, or loan-to-value percentage. 

Improvement or Repair Draws 
Usually you can’t get hard money funding solely for the purpose of making improvements on a property. However, lenders may, at their discretion, allow you to include home improvement funds as part of your regular loan, provided you don’t exceed the LTV percentage. 

TIP: Generally, the hard money services put time limits on the repairs. For example, you may need to show proof that the repairs were made within three months after you secured your loans. 

Concentration Limits 
Another common underwriting procedure for the lenders is to create concentration limits. Basically, this is the limit on how many loans and funding any individual, group of individuals or business can receive. Generally, the lenders put a concentration cap of 5%, meaning one individual or a group of related individuals can’t hold more than 5% of the lending company’s total portfolio. 

Collateral Quality Control
Because hard money loans are asset-based loans, the hard money lenders will usually install policies that help ensure these assets aren’t damaged, devalued or destroyed. For example: 

  • The lenders may limit the type of properties they fund. For example, most hard money lenders will fund residential single-family homes. However, many lenders who’re offering hard money financing will NOT fund mobile homes, vacant lots, construction projects, partially constructed properties, and similar types of loans. 
  • The lenders may limit the areas they’ll serve. Generally the hard money lenders will fund properties within a certain geographical limits, and any other areas at their discretion. However, these lenders tend to avoid funding properties in high-crime areas. 
Bottom line… 
Even though many hard money finance providers tend to have similar underwriting procedures, the point is that you need to thoroughly read and understand these policies before you apply for a loan and secure funding. 

Bio line Philip is a guest blogger writing informative contents related to Finance on behalf of Active Funding Group LLC. For more information please explore Arizona hard money loans on their website.

5 comments:

  1. I have an idea to apply for hard money loans, when i am searching for the basics about applying loans I found your post that actually helps me to understand more about the hard money loans and lenders as well.

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  2. Thanks for sharing very detailed tips about getting a hard money loan. I actually learn something new today reading this article.

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  3. Show them that your environment is friendly and you are the answer to their problem. When starting a money lending business, you need to decide if you want to operate in a bigger or small scale. It clearly depends on the type of loan you are offering.

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  4. Starting this kind of business takes a lot of effort and money as well. There are right and wrong ways to lend money.

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  5. It’s stupid to blame lenders only in your financial failure: these people just do their job in a right way. More over, I’m sure that creditors inform customers about high rates, repayment terms, and extra penal payments in case of agreement termination. Customers are informed about everything, nevertheless they continue applying for no credit check loans. Why do they complain, when it’s too late to change something, and everything is coordinated? But to my mind we could easily avoid the problem with lenders by cutting down the interest rates to a reasonable amount.

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