6 Expert Tips on How to Get a Hard Money Loan

From this article, you will learn how to qualify for a hard money loan to either flip a house or for another type of investing exit strategy

We at Real Estate Bees asked reputable hard money lenders to advise our readers on how to get financing by meeting all hard money loan qualification requirements even if you are a newbie investor.

Let’s start with a short summary of the most important things that help real estate investors meet hard money lender’s requirements.

6 Key Takeaways from the Experts’ Answers

1. Present the lender with a complete and detailed investment plan.
2. Even though it’s not traditional financing, your credit score matters.
3. Be honest with the lender about any drawbacks of your project.
4. The more investing experience you have and can show the lender, the higher your chance to get the financing you are hoping for.
5.  You can still get a loan if you are a newbie, even though not on as good terms as an experienced investor.
6. Do your best to show the lender how much financial strength you have including cash reserves and credit rating.

So how do house flippers get financing? Let’s move on to the detailed answers from our experts.

Note: if you are researching this topic beforehand, while not yet having started flipping homes, you will probably want to read our guide on the pros and cons of flipping houses as a career before you begin.

Experts’ Tips on How to Qualify for a Hard Money Loan

Andrew Abas, Carlyle Capital

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Getting a hard money loan isn’t “hard”, but you do need to ensure that you are focusing on the following points with a lender when working with them to get approved to get the funding you need for your real estate project.

1. Know your transaction. A lender wants to make sure they’re working with a borrower that knows what they’re getting into. This includes knowing the property, comps, and business plan. With most hard money loans setup, for a 12 month term, it’s also important that your exit plan is strong so that the lender knows that they will get paid back.
2. Know your strengths. When it comes to the borrower, the three main things hard money lenders care about are (1) how experienced the borrower is, (2) how strong they are financially, and (3) how strong their credit file is. Make sure that you have this information readily accessible in a standardized format to put your strengths at the forefront.
3. Know your limitations. Ultimately be honest and transparent with the lender about any concerns that affect you or the deal. Your track record, credit, financials etc will be verified, so don’t stretch the truth hoping you’ll sneak past with that. If the property is in the middle of a high crime area, don’t play it out to be in a family neighborhood. The underwriting process is meant to validate all of the information around a deal, so being transparent about any red flags early in the process is appreciated by the lender so that they can quickly evaluate if it is something they can work with or not.
4. Be organized. It’s easier for a lender to say “No” than it is to say “Yes,” so make sure you have all of the information needed in a simple and organized manner to make the path to “Yes” as easy as possible. By providing information when requested without delay in an organized manner, it has a connotation that you are a responsible borrower who is motivated to get this deal done, and the lender will definitely take notice.

Adrian Mathai, Vice President at AMZA Capital

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TIP #1: Improve Your FICO Score

One of the most fundamental pieces of the puzzle to qualify for a hard money loan (or any loan for that matter) is your FICO score. It would therefore behoove you to improve it.

While it is true that for larger loans (say over $2 million) that a Lender can base the metrics more on the property than on the Borrower’s credit report, most loans still require a minimum credit profile. So work on improving your credit score if necessary.

And these days, that minimum tends to be around FICO 650 for most Fix & Flip, Buy to Rent or Small Balance Commercial loans. In almost all cases, the higher your FICO is past that 650 floor, the more favorable terms you will receive.

TIP #2: Shore Up Your Experience

For most hard money loans, especially on Fix & Flip / Purchase & Rehab lending — the more experience you have, the better. While some lenders such as AMZA Capital will lend to new investors starting a home flipping business, you will always get better rates and terms if you can prove more experience.

One of the easiest and quickest ways to do this is to partner with someone who has the experience. Do you have a trusted friend or family member who has two or three flips under their belt in the last three years?

Make them a minority member of your LLC in exchange for a slice of the profits. With an experienced shareholder in your LLC, you will get higher LTVs and lower hard money loan interest rates.

Where to Find a Hard Money Lender?

Now that you’ve learned how best to apply for a hard money loan, the next step is to find a good hard money lender who will be ready to issue a loan to a newbie investor.

To help you with this, we at Real Estate Bees created a national directory featuring the best local hard money lenders throughout the U.S. Browse through it to find a company serving the area you plan to invest in to help you realize your investment project.

Hopefully, these tips were helpful to qualify for a hard money loan. But another thing you need to have in place before getting a loan to flip a house is an exit strategy. Learn how to get out of a hard money loan from the video guide by our hard money expert, Mohit Anchlia.

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About the Author

Kristina Morales is a REALTOR® with over 20 years of professional experience. She actively practices real estate in Ohio but also has practiced real estate in California and Texas. Conducting her real estate business in three states has allowed her to gain unique experiences that make her a well-rounded realtor. She obtained her Bachelor of Arts in Business Management and her MBA with a concentration in Banking and Finance. Prior to real estate, Kristina had an extensive corporate career in banking and treasury. She ended her finance career as an Assistant Treasurer at a publicly traded oil & gas company in Houston, TX.