Hard Money Loans: Common Pitfalls to Avoid and What to Know Before You Apply

Hard money loans (also known as private money or private capital loans) can be a great alternative to traditional bank loans. The approval process is fast and the loans are typically easy to get. In addition, hard money lenders tend to not pay as much attention to things like credit scores or problems with a user’s credit history. A lack of income is also not as important as it is for a bank or another financial lender.

But are hard money loans really too good to be true? There are a few things to remember before you apply. The fact is, lenders still want to be sure that you’re worth the risk to loan money to, and since they’re not putting as much of an emphasis on the traditional documentation like income, credit score and credit history, they still want to be sure that you’re going to repay the loan. Here’s what they’re really looking for:

You’re Willing to Put Some of Your Own Money Up for Investment

You can get hard money loans up to 100% of the purchase price, but lenders understandably like to know that you’re willing to invest some of your own money too. Around 25-30% is typical.

This shows the lender that you’re not going to get all of the funding and then bail at the first sign of trouble. You don’t have to have 25% or 30% of the amount in actual money. You can use equity in other real estate that you own, which you can use as collateral for the hard money loans.

You Can Make Monthly Payments Without Issues

At the beginning of hard money loans, you’ll be making monthly payments that only include the interest, and then the principal of the loan is due at the end of the term (which can be anywhere from six months to two years).

So at least in the beginning, the payments will be lower than a traditional mortgage, but nevertheless, investors will want to be sure that you have either the income or the cash available to cover these payments in addition to paying for, for example, any renovations.

You’ve Got an Exit Strategy Planned Out

Since hard money loans are typically short term loans that have interest-only payments first and then a large payment at the end, many borrowers elect not to pay this huge chunk at the end and instead have an exit strategy like selling the property, refinancing with a traditional loan or pulling the money from another cash source. Private lenders want to see that you have your strategy all planned out and ready to execute when the time comes, otherwise they may shy away from approving your request.

Applying for Hard Money Loans with Confidence

If you’ve planned ahead this far, then you’re already ready to go in terms of your hard money loan application. You’ve got monthly payments covered, you have collateral or cash and you know what you want out of the property. You’ve got a plan and you’re ready to execute it -- you just need a little financial help to get you started.

If you’ve come this far, then chances are, you already know that hard money loans are going to be your ticket to real estate investment and you just need to find a reliable lender and private money lending network to work with. Good news -- we can help with that too! With decades of experience helping borrowers compete in hot, ultra-competitive markets, we know what it takes to help you get your hard money loan approved.

We can also help you apply for and get approved for a hard money loan for your investment property (also known as a fix and flip property loan), commercial real estate and construction loans. These are typically the types of loans that banks shy away from because of the perceived risk (and because banks aren’t investors).

If you’re ready to learn more or start your application process, go with a trusted leader in hard money loans. Call us today at (818) 584-2424 to learn more and let us help you ensure that you have everything needed to get the financing you need for your real estate investment project! For more information about hard money loans visit our website at www.hardmoneylenders.finance/