How to Get a Hard Money Loan to Flip a House
Because hard money lenders don’t consider the borrower’s credit history a primary factor, it may seem very easy to qualify for a hard money loan in comparison to a traditional mortgage.
However, when trying to get hard money financing to flip a house, you can be disapproved too: there are still requirements you must meet to get a hard money loan. It also matters how professionally you are approaching your lender when applying for a hard money loan.
So how do house flippers get financing and what are hard money loan qualifications? To help first time investors qualify for a hard money loan, HouseCashin reached out to a few professional and reputable hard money lenders and asked them to share their advice.
Read on to learn how to get funding to flip a house by meeting lenders’ requirements and approaching them in a professional manner.
Expert Tips by 9 Private Money Lenders: How to Meet Requirements to Qualify for a Hard Money Loan
#1. Jason Balin
“How much money can I borrow?” is a common question I get all the time from real estate investors figuring out how to get capital to flip houses. My answer is always the same: “it really depends on you, the property and the situation related to your deal”.
Most hard money lenders will lend up to 100% of the acquisition and construction costs on a real estate project. That’s assuming that you are purchasing the property at 65 cents on the dollar or less, minus construction costs.
It works like this:
- purchase price of the property: $100,000
- construction cost to renovate it: $30,000
- total purchase price and construction costs: $130,000
- projected after repair value of completed project: $200,000
If these are your numbers, a hard money lender would give you 100% towards your purchase price and construction costs, since combined they are equal to/less than 65% of the after repair value (ARV).
Although a lender will give you that high of leverage on your property, that may or may not make the most sense for you in your situation. It’s important to get leverage on real estate because it gives you the ability to spread your money into several different investments, but it doesn’t necessarily mean you should leverage it all the way to the top.
For instance, if you have $100,000 and you’re only doing one deal a year and it’s only going to cost you $100,000… great! Use your own money.
If you have a lot of different projects going on, it may make sense to leverage up that $100,000 into four projects putting $25,000 into each and getting a hard money or private money loan for the rest.
Although you have the ability to leverage up with a private or hard money lender and get up to 65% based off the ARV on your rehab projects, make sure you have enough cash reserve for construction overages, monthly payments and miscellaneous expenses on that investment.
An asset can turn into a liability very quickly if you can’t cover the debt service or run into other issues that require additional funds.
On the other end, you also want to make sure you have enough liquid cash so you don’t lose out on future opportunities.
Just because someone is willing to give you the most money possible for a deal, doesn’t mean you should necessarily take it because there are costs associated.
At any given time, you should make sure you have enough equity in a property so that if the market changes or something goes sideways, you can unload it at any time so it doesn’t put you out of business.
Jason Balin is the Principal and Senior Underwriter at Hard Money Bankers. His company was started in 2007 to help real estate investors finance their projects as quickly and easily as possible. Hard Money Bankers believe in flexibility and personalized approach. The company currently serves six states and is a self-funded institution.
#2. Noah Grayson
Locating a hard money loan to fix and flip an investment property may seem like a daunting task. There are so many lenders on the internet offering all types of programs, but don’t get distracted by gimmicks or teaser rates.
Look for lenders that have been verified by third-party websites such as lendver.com or fitsmallbusiness.com, and that also list recent loan closings, staff, and reviews on their website.
There are many firms that may offer appealing loan terms, or impressive websites, but lack the credibility or experience to provide you the loan you need.
There are quality lenders that can offer high LTV financing up to 85% to 90%, including up to 100% of rehab financing, and at affordable rates even for borrowers with low credit and limited investment experience.
Some lenders can even provide you a long-term permanent loan fixed up to 30 years if you decide to keep your property as a rental investment. Do your research and take your time: it will save you significant money in the long run.
Noah Grayson founded South End Capital in 2009. Now his company is a nationwide, non-conforming lender providing small balance real estate mortgages, subprime SBA loans, and business financing. They are committed to providing excellent service and innovative financing that is affordable for all borrowers. Additionally, they provide fee discounts to veterans and first responders. LendVer, US Business News, Fit Small Business, Top Ten Reviews, and Business.com have each recognized South End Capital Corporation as one of the premier non-conforming lenders in the country.
#3. Adrian Mathai
First time flippers often want to know the best advice for ensuring their fix & flip loan gets funded. The answer to that is – do your homework on getting accurate ARV comps! Bad comps are the single biggest reason for loan failure.
Don’t forget that part of the loan process involves a full appraisal on the property. The professional appraiser will pull accurate real estate comps, to ensure that your estimated ARV is in line with the market as well as your proposed rehab budget. If it is too far off, then the lender will refuse to fund the loan.
The best ways to research accurate ARVs is to talk to realtors, check online real estate databases, and talk to local contractors. With the right research, you not only ensure the successful funding of your loan, you also maximize the potential profit on your flip.
Adrian Mathai is the President of AMZA Capital. His company started working with family offices in 2013 to finance a range of business projects and then moved quickly into the financing of investment and commercial real estate.
#4. Craig Christensen
Hard money lenders appreciate working with organized borrowers. Approach your hard money lender with the following information in-hand at the initial loan request for a quicker decision regarding loan approval for your fix/flip property:
- purchase price of property
- pictures of the property or a link to the property listing
- renovation budget with line items
- renovation timeline
- estimated future sales price of property post renovation
- source of monthly loan payments during renovation and sales periods
- anything that shows your experience in the fix and flip market.
Craig Christensen is a co-founder of Payette Financial Services LLC . He and the other founder—Matthew T. Moore—both have over 25 years of extensive experience in the commercial loan niche. Initially founded as an Idaho hard money lending institution, Payette Financial Services now operate in more than ten states. The company fulfills the need for honest and reliable commercial private money lenders who can close loans quickly.
#5. Michael Nelson
To improve your odds of being approved, before requesting a loan, make sure you have an organized plan. This does not have to be complicated or time consuming, but should include:
- an accepted offer
- the address of the property
- photos of the property
- purchase price
- your down payment
- renovation costs
- estimated sales price when completed
- timeline to complete the project.
These are all items you should know after doing your own research on the property, so there’s no extra work.
Everyone is busy and lenders appreciate and respect borrowers who are organized and have a solid plan. A confusing or disorganized loan scenario rarely gets you a positive outcome.
Michael Nelson is the Vice President of Wasatch Credit Association—a family-owned company that serves investors in Utah, Oregon and Vancouver, Washington. Their goal is to give real estate investors the best opportunity to save on interest rates by getting affordable loans with flexible terms.
#6. Mike Bonn
Know all your numbers before contacting a lender. Knowing these numbers not only helps the lender but also lets you know the costs and expected profits from the flip. What your purchase price is, the budget for the project, value after repairs and the amount you want to borrow.
If you have any past projects that can be shared with your new lender, that will also help. All information and pictures of these past deals from what it looked like when you started and what it looked like when it was sold. Include all basic numbers on these deals to the lender. The more you make the lender feel comfortable the easier it will be to get a loan.
Also shop around and find out the best options for you now and what loans are available. The cost of money is one of the big 3 costs in a project, and you should spend some time finding lenders with lower costs and easy escrow funding. Best of luck!
Mike Bonn, the founder of Hard Money Mike has been a lender for over 25 years focused on real estate investing. He started as a traditional lender, and one day he did a private loan for a Realtor and never looked back. Mike has been lending private money since that day in 2000.
#7. Robert Caverly
Most people pitch their deal to a lender as what they hope or expect to accomplish with their project. The lender is always going to analyze the deal from a “worst case scenario” perspective, and figure how they still get repaid in that scenario. When you go to pitch your next deal to a lender, try to look at it from this perspective.
To get a lender interested, you need to clearly and precisely present both:
- the unlikelihood of a worst case scenario and all the mitigating factors to prevent this
- on the off chance that the worst case scenario occurs, how you will ensure that the lender still gets repaid.
A lot of people struggle to secure financing on good deals because they frame and pitch their project poorly, which causes the lender to lose confidence in the borrower—even if the deal is strong.
Robert Caverly is a loan officer and marketing manager at PSG Lending. He has extensive experience in traditional and hard money loan origination and double major in Political Science and Economics. At PSG Lending Robert helps maintain the image of the company known as a reliable direct commercial hard money lender with a quick and easy process. This approach helps the company build long-lasting business relationships with their borrowers.
#8. Tim Pagel
The best advice I can give you about how to get a hard money loan is to have your team in place to be a serious investor. Before you put an offer on a house and apply to my company to get a loan, you should be sure you have at least 2 or 3 contractors lined up to get you bids on the project you are trying to do.
In addition, plan on having money of your own to put into the project. Private/hard money lenders will not finance 100% of your project, no matter what Facebook says. We normally look for at least 15%-20% as a down payment.
Last, be open and honest with your lender. You want your money people to trust you and want to deal with you again on future projects.
Tim Pagel, the President and Owner of Geneva Lakes Funding, has 18 years of extensive experience in Real Estate as an investor, loan officer, agent, and broker. His company provides hard money lending services in forty-three states, and at the same time is committed to helping Wisconsin investors develop and grow their local community.
#9. Jeff Jacobs
Do your research before you buy. Look at how fast homes sell in the location you are planning on buying in.
Prepare a budget for rehab expenses and then add 25%—always more than you plan on spending. Age of real estate can cost you more. Get a professional’s opinion of value after rehab before you buy.
Remember – you make money when you buy, not when you sell.
Jeff Jacobs, the CEO of Jacobs Funding and Investments, has been in the industry for over fourteen years. He provides hard money loans to residential and commercial real estate investors of Arizona. Jeff prides himself on offering the quickest possible in-house service and personalized approach to his clients.
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