Do hard money lenders care where a DP comes from?

Question

Just got denied lending from a supposed HM lender due to the source of the down payment coming from a personal loan. I understand the risks, regarding the method of using a loan to get a loan, but was told that Hard Money will overlook that if the deal lines up. I've run dozens of calculations on this flip deal. When it closes not only will I be able to pay the HM loan off but I would also plan to pay the personal loan off and still walk away with a decent profit. Should I explore other hard money options or is this a roadblock Ill continue to face?

Jonathan Taylor · Answer

@Hoa Nguyen short answer, yes. HM lenders, depending on the lender, want to make sure you are using your cash and not borrowing money that isn't collateralized (secured by real assets).

Basically you aren't borrowing to the nines and stretching yourself thin. A personal loan (business line of credit, cash advance, loan from a friend, etc) cannot be used as a down payment with a lot of the lenders I work with since these loans are not secured by real assets.

Types of loans that SOME lenders accept are HELOCs, margin lines, Secured second position cash outs loans on other properties, etc. These are secured by real assets (recorded lien on real property, secured by market stocks, etc. Therefore reducing risk associated with your transaction. So sourcing is a huge aspect to lending and you cannot just fill your account  without documenting where It came from.

Mike Klarman · Answer

Maybe the loan shows up on your credit report and tilts your debt utilization to a point that makes the lender feel uncomfortable.

Can you share some details about the deal?

Matthew Crivelli · Answer

@Hoa Nguyen

It depends on the capital provider. Some hard money lenders want to see a bank statement and will ask for a letter of explanation if they see a large deposit, others wont need to see a bank statement at all, in fact we would only need a stated personal financial statement. I would call around.