Is it possible to get prequalified through a hard money lender?

Question

Is it possible to get prequalified through a hard money lender prior to getting my first deal?

Is there any advice you can share with a new investor on how/when to have financing ready (assuming I’m not buying all cash).

Thanks!

Derek Dombeck · Answer

Yes, to an extent. Hard money loans are asset based, so you may look good to the lender as a borrower when you get pre-qualified, but then bring a deal in to fund that is not a good asset or a good neighborhood, or too big of a rehab for your experience level, etc.

So, it's a combination of criteria, but talking with your lender to find out that criteria is important in your pre-qualification.

Alan Nelson · Answer

Riaz,

Derek makes good points.  Remember that many hard money lenders are individuals and want to know whom they're doing business with.  Just yesterday, I had lunch with a potential borrower and we were joined by another real estate investor who referred that borrower to me.  We already talked about his experience level and discussed the kinds of deals I'm open to funding.  That way, when a deal arises: (1) we don't have to spend the time to get to know each other and (2) the deal will more likely be a good fit and we can act quickly.

Keep in mind that, without a "deal on the table", some HML's might not want to spend a lot of time; others might be open to a 30-minute coffee talk.  You've got nothing to lose by asking fellow REIA members or other local investors for some recommendations, then reach out to those local guys.

Lien Vuong · Answer

Yes, there's definitely some preliminary work that needs to be done such as your credit, DTI, assets, etc. That way they get a good sense of where you stand so you're not at the starting point when you've identified a property.

Steve Morris · Answer

"Is it possible to get prequalified through a hard moneylender prior to getting my first deal?"

Wouldn't hurt, but it's no guarantee since hard money guys look for 2 things:

1) The ability of you/property to service the debt, so that's partly the personal side AND

2) Things go sideways (ie you default), there's enough equity to cover their debt.

Be careful, since you default, that may be it and you don't get any equity out.

Some of the less scrupulous ones will push stuff to default.  Like ongoing "inspections" and tell you that you need new siding or roofs or paving and then you need more money to stay out of default.

Jason Hirko · Answer

@Riaz Jiwani Of ocurse HMLs will prequalify you. If they won't, they probably aren't going to be very easy to work with when you do have a deal. It isn't difficult to look at someone and say "yes, we'd lend to you if the property is right.' For example, we look at the following things (in order):

• 1. Liquidity
• 2. Experience
• 3. Credit Score
• 4. Debt to Income
• 5. Net Worth

Granted the borrower only makes up 50% of our profile and the property is the other half, but certain answers to the above questions could either completely disqualify you, even on the best deal, and vice versa. For example, if 1, 3, 4 & 5 above are all good, but the borrower has no experience, we might say you are conditionally preapproved, but your rehab can't exceed $20k. Or if you only have $30k in the bank, we might say you are preapproved to up to a $150k purchase price.

And an HML that won't provide you with a Proof of Funds/pre-qual letter is a joke.

Ronald Isgate · Answer

I would recommend you call around to several lenders to get a feel for their process.  I represent quiet a few, and they all tend to work differently.  Many wont pre-qualify you because as mentioned above, it is asset based - but your personal strength as a borrower will impact your exit strategy (if you are going to refi or something like that to get out of the loan).  The strength of the deal is what will ultimately carry the day.  Now you may get from the lender how much they require down, etc., which is very useful information in trying to make your offer/evaluate the property.  Other lenders tend to skew towards the strength of the borrower - again, it all depends on the lender.  In my experience, your RE experience plays a part more so when you are talking about fix and flip loans.  MY suggestion is you start calling around to lenders to get as much info as you can - that will help you tremendously.

Is it possible to get prequalified through a hard money lender?

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