7 Steps
to Guaranteed Hard Money Loan Approval
Trusted by real estate investors in Michigan, Indiana, and Ohio, our Hard Money Handbook contains everything you need to know to get your next deal funded with a hard money loan.
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Hard Money Loans
The purpose of this handbook is to help you understand how to get the most out of your relationship with your hard money lender, how to make your loan application attractive to your lender, and most importantly how to obtain hard money loan approvals so you can take your real estate investing to the next level with a reliable funding partner you can count on for years to come.
What is a hard money loan?
A hard money loan is a form of asset-based financing where a borrower obtains funds backed by real estate. These loans are typically provided by private lenders or hard money lending firms. They require a first-position mortgage or deed of trust on the property, a promissory note, a commercial loan agreement, and a personal guarantee from borrowers.
Why would a borrower use a hard money loan?
A hard money loan is appealing to investors looking to purchase, renovate, and sell or rent distressed properties because traditional banks and credit unions are hesitant to lend for such projects. These loans are a quicker alternative, often funded in a shorter timeframe than traditional loans that involve lengthy underwriting and appraisal processes, which can take 30 to 45 days. This makes hard money loans advantageous for borrowers needing swift property acquisitions.
How is a hard money loan amount determined?
A hard money loan's approval is based on the present and future value of the property being used as collateral, while conventional loans place greater emphasis on the borrower's credit, income, and ability to repay. Due to the increased risk and shorter loan terms, hard money loans generally carry higher interest rates and origination fees compared to conventional loans.
To access a comprehensive breakdown and detailed loan calculation, please download our handbook today.
How much does a hard money loan cost?
Hard money loans are typically short-term, with Finley Capital offering loans ranging from 1 to 6 months. While fees can vary among lenders, a common fee structure at Finley Capital includes a 12% interest rate, 3% origination fee, a $700 processing fee, and 3 draw fees of $100 each.
Experience a clearer understanding of loan costs with our detailed computation. Download the Hard Money Handbook now.
How does a hard money lender evaluate a loan?
Hard money lenders have a simpler and more flexible approach to underwriting compared to conventional lenders, who rely on complex credit and income criteria. Hard money lenders use common sense and creativity to evaluate each deal, considering if the property is suitable for a hard money loan and if the borrower is likely to succeed in their plan for it.
The Hard Money Loan Process
At Finley Capital we have broken down the hard money loan process into 6 stages: Apply, Process, Underwrite, Fund, Service and Repay. We will break down each step in detail so you have a better understanding of what to expect along the way.
The Hard Money Loan Process
1
Apply
The hard money loan process initiates with the submission of your application and deal details, culminating in a term sheet that outlines the loan offer for your consideration and, upon acceptance, leads you to the next stage.
2
Process
Upon signing your term sheet, the loan process advances to the document collection phase, encompassing personal, corporate, and property-related documents, which include financial statements, corporate details, purchase agreements, property photos, and more, ultimately moving your loan to the Underwriting stage.
3
Underwrite
At Finley Capital, we employ a thorough underwriting process, evaluating the 4 C's: collateral, character, capacity, and credit, wherein we assess property details, your background, financial capacity, and creditworthiness to determine your loan's terms, ultimately advancing to the Fund stage upon satisfying underwriting conditions.
4
Fund
During the Fund stage, the final loan conditions are addressed, including insurance commitments and document preparation, leading to the setting of a closing date, ensuring all parties are informed and facilitating a smooth transition to the Service stage upon loan funding.
5
Service
During the Service stage, you'll focus on property improvements, requesting draws, and careful documentation. After repairs, you choose to sell or seek a tenant. The Repay phase begins when you accept an offer or finalize a refinance loan application to pay off the hard money loan.
6
Repay
In the Repay stage, you request a loan payoff amount from your hard money lender, and they calculate it based on various financial factors. When the closing date is set, the title company sends a closing statement, and upon loan repayment, the lender records a release of mortgage or deed of trust, marking the loan as fully repaid, concluding the typical hard money loan process.
Access the handbook now for an in-depth explanation of each of these steps.
The 4 C’s of Underwriting a Hard Money Loan Application
At Finley Capital we follow the “4 C’s” of underwriting: collateral, character, capacity and credit. Let’s take a closer look at each element through the eyes of the hard money lender to help you better understand how to increase the strength of your loan applications.
Collateral
In the underwriting process of a hard money loan, the lender meticulously assesses the property's current condition to determine its estimated as-is value and conducts an analysis to estimate the after repair value (ARV) by comparing it to similar properties in the local submarket, often relying on conservative valuations to mitigate risk.
Character
In contrast to traditional banks relying on complex credit assessments, hard money lenders assess your character directly, often through conversations and references, and may consider your experience in real estate when determining loan terms, making it a key factor in the lending decision.
Capacity
In the hard money loan application process, your financial capacity to contribute to the project, cover payments, and manage potential cost overruns is evaluated through the analysis of personal financial statements, tax returns, and entity information, ensuring you can handle the financial aspects of the project.
Credit
In the hard money loan application process, your credit history, including your credit score and background check, plays a role in assessing your eligibility, but many hard money lenders, such as Finley Capital, consider multiple factors beyond credit history to determine loan approval status, emphasizing your ability to repay the loan.
This sounds like a lot (and it is), but don’t worry. The final section will outline our 7 step process to follow for guaranteed hard money loan approval.
7 Steps to Guaranteed Hard Money Loan Approval
Every hard money lender has their own methods for underwriting and approving loan applications. At Finley Capital, we feel that when a borrower follows all 7 steps outlined in this chapter, it becomes much easier to say yes to the loan request.
Step 1: Find the right project
Prior to submitting a loan application to your hard money lender, it's imperative to conduct a detailed underwriting of the deal from a lender's perspective. Understanding your lender's specific lending criteria, such as the maximum loan-to-ARV ratio, is essential for a successful loan request. By proactively underwriting your deal and aligning it with your lender's guidelines, you can boost your credibility and increase your chances of loan approval.
To gain further insights and access sample loan comparisons, simply download the Hard Money Handbook today.
Step 2: Define a clear exit strategY
When seeking a hard money loan, your exit strategy for repaying the loan is a crucial element for consideration. In this process, clarity is key, and providing a well-defined plan for repayment, whether through resale, refinancing, or other means, is essential to instill confidence in your hard money lender. This strategy not only ensures repayment but also enhances your credibility in the eyes of your lender.
To delve deeper into crafting a solid exit strategy and navigating the hard money loan process, download our comprehensive handbook today.
Step 3: SUbmit a full loan app
While a hard money loan primarily relies on the property's value, factors like your character, capacity, and creditworthiness still play a significant role in the underwriting process. Most hard money lenders assess your credit profile, financials, and corporate documents, making it essential to present a comprehensive loan application to enhance your credibility and maximize your chances of loan approval.
Download the Hard Money Handbook now to learn more!
Step 4: Include comparable sales and photos
Each hard money lender, including Finley Capital, follows a unique internal underwriting process to assess property value. To expedite this process and establish trust, it's crucial to submit relevant and accurate comparable sales data with your loan application, demonstrating your market knowledge and building credibility with your lender. Additionally, including comprehensive property photos and videos, while being transparent about its condition, further strengthens your loan application.
Gain access to the handbook now for a comprehensive guide, including sample photos and detailed instructions on what to include in your submission.
Step 5: Build a comprehensive scope of work
In the loan-to-value formula, the total scope of work budget is a crucial component. It's vital to provide a comprehensive breakdown of estimated repairs in both material and labor costs, supported by written contractor estimates, to give underwriters a clear view of your project's financial details. Additionally, preparing a draw schedule for funds release demonstrates your renovation plan and safeguards the lender's investment, a practice that your hard money lender may already have a format for.
Download the Hard Money Handbook now to learn more!
Step 6: Become a strong borrower
Put yourself in your hard money lender's shoes – they prefer borrowers with ample cash reserves, excellent credit, extensive experience, and strong moral character. Strive to become this kind of borrower by saving up as much cash as possible, building a stellar credit score, and gaining valuable real estate experience, which will greatly enhance your appeal to hard money lenders when seeking funding for your projects.
Access the handbook today for in-depth insights on becoming a highly qualified borrower.
Step 7: Be professional
Achieving loan approval from a hard money lender requires more than just financial competence. Maintaining professionalism in all your interactions, both online and in-person, is a critical step towards securing their trust and support throughout the lending process.
Download the handbook now to explore the seven essential steps leading to guaranteed hard money loan approval.
Simple.
Our loan application process is straight forward and streamlined.
Fast.
Our underwriting is fast so you can get your deal funded quickly.
RelIable.
When you receive our loan commitment you can rest assured you loan will be funded.
The "Hard Money Handbook" is brought to you by Finley Capital, a full-service hard money lender providing funding solutions to real estate investors. From first time flips to a good deal you can't pass up, Finley Capital can help you achieve your goals.
Address: 6024 Eastman Ave Midland, MI 48640
Email: logan@finleycapital.us
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