The amount of money that you can actually borrow for a hard money loan is typically dependent on the value of the property that you’ve given up to be used as collateral for the loan, not on your income or credit score. The amount that hard money lenders can lend depends on the overall strength of the deal and will vary according to the individual lender, property type, property location, property condition, and many other factors, but typically, they lend as much as 60% to 75% of the value of the property. We know how unique each financing can be at Lord Mortgage & Loan.
If traditional financing is not a fit for our borrowers, or our borrowers need financing sooner than traditional financing, we will consider other options, including private investor financing or hard money financing.
What Is The Formula For The Amount Of A Hard Money Loan?
Hard money financing is usually based on the property and the investment opportunity, as opposed to a traditional mortgage, which may place a significant emphasis on income, job history, debt-to-income ratios, and credit.
The lender is interested in the value of the property, the value of the property with improvements (if applicable), and the amount of money being requested and how it compares to the value of the property.
If a house is worth $500,000 with a lender’s loan-to-value ratio of 70%, for example, then a lender might issue a loan for approximately $350,000. This is a sample only and not a promise of the amount that will be loaned.
The final number could change according to the condition of the property, the marketability of the property, the borrower’s experience, the exit strategy, and other factors pertaining to the particular deal.
Understanding Hard Money LTV
Hard money LTV is an acronym for “loan-to-value ratio.” Compare the amount borrowed to the value of the property.
If you’re borrowing $300,000 against a property valued at $500,000, the LTV is 60%.
The lower the LTV, the greater the equity the borrower has in the property. As a lender, that’s a good thing if they end up having to sell the property to pay off the loan.
But there are some hard money deals that will take into account the after-repair value, or ARV, of the home, instead of just its condition. This may be especially important if you are a real estate investor buying a home that is in need of repairs.
What Factors Influence The Amount Of Financing You Qualify For?
Some factors to take into account are:
- Property value as of the current date, if applicable; property value after repairs.
- What is the building, where is it, etc.
- Building type and location.
- Purchase Price/Mkt Value
- The scope of renovation and the estimated costs.
- Borrower’s investment experience
- The proposed repayment/exit strategy
- The equity available in the home and down payment amount.
What Are Some Of The Common Hard Money Loan Requirements?
Hard money loan requirements tend to be more asset-based than those of conventional mortgage requirements. The lender’s risk assessment is a key element of the property.
But this doesn’t imply that credit, income, experience, or financial documentation is never of importance. Requirements can differ from one lender to another, and lenders depend on their own criteria.
A lender might want to check the property information, borrowers, appraisal or valuation, plan for repaying the loan, estimated renovation budget, and the purchase contract.
Having an exit strategy is especially crucial for an investor. The lender should have a clear understanding of how it will be paid off in the end, whether by selling the property, refinancing into a longer-term loan, or otherwise.
Frequently Asked Questions
Is it possible to obtain a hard money loan in South Florida even if your credit is poor?
Possibly. Hard money lenders might be more concerned about the property’s worth and the full transaction than traditional lenders. However, even the terms or approval may be influenced by the credit if the lender and deal are so.
What is the minimum amount of cash needed to invest in Palm Beach County?
Potentially, yes. If a property, the amount requested, and the repayment plan are found to be acceptable to the lender, it may be possible to obtain hard money financing for investment properties. Lord Mortgage and Loan provides private investor and hard money financing for qualifying deals.
Is it possible to renovate a home with a hard money loan before selling it?
Renovations are indeed a typical application of this type of loan. When deciding on the financing structure, the lender may take into account the value of the property, as well as the plan for its renovation, the projected value of the property, and the exit strategy.
Do commercial properties in South Florida have hard money financing?
It can be. The availability of financing will vary based on the property type, value, transaction structure, and lender requirements. Different underwriting criteria may apply to commercial and multi-unit properties as compared to residential properties.
How can I refinance a hard money loan after renovation?
Refinancing can be considered to exit a property in many investment plans when the property value and/or cash flow has shifted. When planning a house loan, it is important to know what the new lender will require to qualify, since the original lender might not have the same criteria.