Hard money rehab loans typically come from investors who specialize in a particular remodeling niche. For example, if you wanted to revamp the exterior of an aging home or structure, it might be in your best interest to apply for hard money rehab loans. They’re meant for rehabilitating an older building and provide the funds to improve its overall appearance. Is this your first time applying for hard money rehab loans? Read on to familiarize yourself with this convenient renovation lending opportunity.
Hard money renovation financing is usually sought after for its quick turnaround rate. Most applications for hard money rehab loans can be process within a week or two. Compared to the average business bank loan that requires applicants to have a minimum of two year in business, $250,000 of annual earnings, good credit and positive cash flow, hard money loans definitely seem like the better deal.
For those who are first entering the world of building rehabilitation, not know what to expect can be a little unnerving. That’s why we’ve created a list of considerations for you to keep in mind when applying for these secured short term loans:
- Importance of Equity
Most hard money rehab lenders offer their money based upon the equity of the property. This represents the current market value of the home and must be at least 30%-50% in order to protect the investment of the real estate investment lenders. Remember this when you present project to the investors and you’ll have a better chance at securing the loan.
- Length of Project
The size of the project could greatly influence the decision of the hard money rehab lenders. The lengthier and more involved the project is, the riskier the investment. Why? Well, compared to the one to 20 payback period of the traditional loan, private hard money loans can only be extended up to five years, which means they could lose out if the project turns out to be bigger than expected.
- Personal Finances
Financial situations can say a lot about an individual and applicants who aren’t doing well financially will have a much harder time getting a secured short term loan. If you’re looking to take on a rehab project, make sure you either get an equity partner to offset your shortcomings or work to build up your track record in stocks, cash and commercial real estate. Any of these will give you a better standing with the hard money mortgage lenders and a greater chance at securing the necessary funding.
Do you have any additional tips for obtaining funding from hard money rehab lenders? Share you thoughts in the comments below.