Best Way to Get Approved for Hard Money

6 Replies

Hi Everyone!  I want to use hard money for the first time to fund my next deal. I would love insight on how to increase my chances of making this work. Current Situation
  • My first flip is under contract for $45k purchase price, $35K renovation, $145k ARV (Supposed to close on Halloween!)
  • I found another property that's listed for $34k with a (conservative) ARV of $100,000 that I want to fix and flip
    • (The property has been sitting for a while, so I'll definitely start with an offer below the asking price) 
  • I have not yet identified rehab costs
    • (However, this property is in similar condition and size to my first flip. So somewhere in the ballpark of $30k seems reasonable)
  • I don't have the funds necessary to purchase and rehab this second property, so I want to use Hard Money to fund this loan 

I've never used Hard Money before, but below is the 20,000 foot view of the steps I feel I need to take:

  • Have my contractor walk the property to offer an estimate of the rehab costs 
  • Place an offer through my agent
  • Once the property is under contract, leverage my due diligence period to acquire the hard money

Question:

  • Would you change anything about the above steps? 
  • Is it correct for me to get the property under contract before I have the Hard Money financing approved? 
  • What steps should I take to increase the likelihood of the Hard Money lender approving this deal? 

Note: 

  • My first flip, and the second one I'm looking to use hard money for are both in Louisiana, and I live in California. Not sure if that changes your answer, but thought I should share!

Thanks! 

It's been my experience that you should try to arrange your financing before making the offer. There are many hard money lenders that are less formal than the more established companies and can provide you at least a tentative yes with some basic information. If you have the property address, purchase price, rehab budget, and ARV, a smart lender can make a pretty quick decision.

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  • Would you change anything about the above steps?
    • Talk to at least two local HMLs and at least two national HMLs before you go under contract.
  • Is it correct for me to get the property under contract before I have the Hard Money financing approved?
    • It is typically done in this way (from my experience with my borrowers), however you can be approved contingent on the property with most lenders.
  • What steps should I take to increase the likelihood of the Hard Money lender approving this deal? 
    • ALL HML's will not only approve the deal, but also approve you as a borrower. If you already know that you as a borrower are approved, and you know HOW the lender approves a property, you can go under contract with a fair amount of confidence that it will be financed.

HML typically look at the following for borrower: Credit, Assets, Experience, it is not uncommon for a criminal background check as well. If purchasing through an LLC - they will likely need to look at your entity documents.

HML will look at this for the property: As-is value and ARV through a BPO or appraisal, sound rehab plans, project can be completed on time, if renting: rental analysis.

Hi Tony, Make sure your financial documents are compete- it makes it seem that this application is a priority for you and it is important. Provide contract, budgets, LLC documents along with a summary of competed deal. Responsiveness is key...

Thank you all for being so responsive! Much appreciated. 

I just had my first call with an HML this morning. Planning to speak with a few more that lend in my investment area before I make a final choice.

As a hard money lender, I would prefer that you get pre approved ahead of time, though it is not totally necessary. I tend to shy away from deals where the reno amount is more than the purchase price unless we are talking about an experienced investor. Another thing to remember is that most HML have minimum loan amounts - mine for example is $80,000 so it seems that may also be an issue you run in to based on the deals you listed.

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