DSCR Loans: Is Your Credit Score Killing Your Approval Rate?

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DSCR Loans: Is Your Credit Score Killing Your Approval Rate?

Many investors wonder whether or not their credit score is killing their approval rate for a DSCR loan. The answer is yes! Here at Hard Money Mike we see a lot of clients who are struggling with their credit scores and need them fixed. It is amazing how many clients are only 1 to 10 points away from either getting a loan or getting better terms. One of the biggest contributing factors is credit score usage. How can you increase your approval rate? Let’s take a closer look.

The importance of reviewing credit score usage.

Here at Hard Money Mike we require that customers use a simulator first. This simulation can be done through MyFico, Experian, Credit Karma, and shows how your credit score will change if credit cards are paid down or paid off. How can you pay off your credit card debt quickly and easily when you are looking at using a DSCR? The answer is a usage loan. Most investors have used their credit cards to make personal purchases, buy information or training materials, or rehab expenses on personal credit cards. In doing so it not only drives up their balance, but it also drives down their score. This usage problem affects 7 out of 10 investors because they are using personal credit instead of business credit. 

Get into a better long term loan today!

First and foremost investors need to address the areas where their credit score is impacting them the most. They can then pay it down by using another loan in order to boost the credit score quickly and easily. By running a simulation first, investors can see the areas that are impacting their credit score the most. Our main goal is to help investors get into a better long term loan. A DSCR loan is based on your credit score and the income made on the property. If your credit score is low, it will in turn affect your income because you are at a higher rate. As a result of the higher rate, it can often kill your approval rate because the amount could go above the break even point. Don’t let low credit scores ruin your chance to succeed in real estate investing. 

What exactly is a usage loan?

A usage loan is a private loan that is secured with a property in order to guarantee repayment. This loan is used to pay off either all or part of your credit debt in order to increase your credit score. Again, this is where the simulator comes into play. It helps us to determine what needs to be removed from your credit in order to increase your overall credit score. Once the credit card statements cycle, the information is reported to the credit bureaus. This is what will impact your score. For example, we had a client in Detroit who was able to drop his DSCR rate by 2 points in a matter of weeks because he was able to increase his credit score. 

Make the move to business credit cards today.

If you are one of the many investors who are struggling with credit score usage, have no fear. Once you get your credit score under control with the usage loan, and get the DSCR loan that you need. After that, you can then begin the switch over to business credit cards. Business credit cards are the same as personal credit cards, however, they do not show up on your personal credit. If you are new to real estate investing it is important to make this process easier and more profitable from the very beginning. This can be done by setting up your LLC, getting business credit cards, and making sure that your lenders are in line. Those who take the time to set themselves up correctly will have lower rates, better terms, and the LTV will get better as a result.

We can help you build wealth by accumulating assets. 

Here at Hard Money Mike we want to help you succeed in real estate investing. Build the wealth you want by accumulating assets today! Higher credit scores will allow you to qualify for the properties you need for your success. Those who are able to accumulate assets at the best rates possible will create opportunities to build their wealth quickly and easily. Is a usage loan right for you? Contact us today to find out more! 

Watch our most recent video to find out more about DSCR Loans: Is Your Credit Score Killing Your Approval Rate?

DSCR: Will You Be Able to Refinance Your BRRRR Property?

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DSCR: Will You Be Able to Refinance Your BRRRR Property?

Today we are going to compare and contrast two properties in order to see how the differences can affect your ability to refinance. Here at Hard Money Mike we do a lot of 100% financing for both the purchase as well as the rehab on a BRRRR property. Before jumping into financing, we also make sure that the property will qualify for a long term loan. One thing that you need to keep in mind is that while you may qualify for a rate and term of 75%, the property may not qualify. Let’s take a look at some numbers to see what that means to you and whether or not you will be able to refinance your BRRRR property.

Look ahead to the refinance before purchasing the property!

More and more people buy a property, get it all fixed up, and then expect to refinance it at 75% to 80%. Unfortunately, when they go to refinance they end up hitting a wall. Oftentimes the property doesn’t qualify for a refinance based on the DSCR ratio. We want to go over a quick example to make sure that you know how to run through the numbers before you purchase that BRRRR. 

What do we mean when we say that the property doesn’t qualify?

It is important to remember that the numbers have to break even when using the DSCR ratio. This will to keep the interest rates lower. Just to clarify, breaking even means that your rents equal your expenses. While your property and credit score might qualify because they break even, your property might break even at a lower LTV. Why would this occur and why is this different in different zones? Let’s look at the numbers!

Property has a valuation or ARV of $200K

You are looking for a rate and term at 75%

That would be a loan amount of $150K

$200K x .75 = $150K

You get into a BRRRR and you are all in at $150K

Rate of 7.5% would be $1,050 per month for principle and interest on a DSCR loan

What are the rents for this property in different areas?

It is important to research the rents in the area to make sure that your property will break even. One property might rent for $1400 while another would rent for $1800. We want to find the maximum LTV before you purchase a property to see if the property qualifies. While you need to consider your mortgage payment, there are other factors that you need to consider as well. This includes the taxes, insurance, flood insurance (when applicable), and HOA (when applicable). These amounts all have to be added to your payment before comparing it to the rents. 

Property A Property B
Taxes $1800 $3600
Insurance $1200 $3600
Flood/HOA None $1200
Annual Cost $3000 $8400
Monthly Cost $3000/12 = $250 $8400/12 = $700
Total Monthly Amount $1050 + $250 = $1300 $1050 + $700 = $1750

 In conclusion,

Before you jump into a BRRRR, or before you find out if you can qualify for 100% financing, make sure that the property qualifies. It is important to find out where your rents are, as well as any additional expenses. These numbers will be helpful to see where the property breaks even. Then you so can make sure you can get the money that you are expecting

If you want to make this easy, reach out to us at Hard Money Mike! We are happy to run through the numbers with you to make sure that you’re able to refinance your BRRRR property. 

Watch our most recent video DSCR: Will You Be Able to Refinance Your BRRRR Property? 

Can I Get 100% Financing with Hard Money?

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Can I Get 100% Financing with Hard Money?

While hard money is flexible, can you really achieve 100% financing with hard money? The answer is yes! The beauty of true hard money is that you can achieve 100% financing for flips. While there are some situations where we can’t do 100% financing, it is possible in most cases. For investors who are doing flips or even BRRRR rentals, they are getting the properties at a discount. This is what makes it possible to cover all of the financing for the property. How can you get a hard money loan to cover the purchase, rehab, and closing costs? Let’s take a closer look!

Who can we help?

Here at Hard Money Mike we can help those who do 20 to 30 properties a month, as well as those who are just starting out in real estate investing! Unlike most large lenders that don’t do 100% financing, we are able to as long as it’s a really good deal. A good deal is one that is all in at 70% to 75% ARV, as well as where the property is at. Just to clarify, ARV stands for after repair value or what you can sell the property for after all of the repairs have been done. 

For example:

If you are going to sell something for $400K, we can lend up to 75% of that ARV. You will need to put the purchase price, rehab, and some of the closing costs in there in order to make it work. In situations like these, we would be able to finance at 100%. For investors who have multiple projects going at once, 100% financing can make a huge difference in their success.

What is a good deal?

A good deal is one that you are going to make money on. All lenders want is to have investors make money, pay them back, and do it again. Another important factor that we look at as a hard money lender is where the property is located.  While some properties might be easy to find comps, there are some rural properties that are harder to find comps on. In order to be successful in real estate investing, it is important that you not only make sure the location is good, but that you also create a property that is sellable. A hard money loan can help you achieve your success without requiring money out of your pocket or the need for a partner.

For example:

We had someone call us who had decided to use his dads money to buy and sell a property. When they got to closing, the dad said that he wanted not only his interest rate but 50% as well. While it seemed to be an easy way to get the money he needed for the investment, it ended up costing him more. A hard money lender might have a higher interest rate compared to traditional lenders, however, it is still a lot cheaper than having a partner.

Leveraging hard money at 100% just makes sense!

Keep in mind that these deals are for a shorter period of time for 6 months or less. This is because you are financing the whole amount. We just funded a deal for $120K. After all is said and done, they are going to make between $30K and $40K. Just by paying a hard money lender $6K to $8K for interest and expenses, they can make a really good profit on the property. That’s where leveraging hard money at 100% just makes sense! 

No hard pulls on your credit!

Another benefit to using hard money is that it doesn’t show up on your credit. This is because we don’t do hard pulls. While you don’t need a good credit score in order to be approved, it is important that you have a decent score. We understand that a lot of investors use their personal credit cards to cover their business expenses. As a result, it can quickly drive down their credit score. Unlike traditional lenders, we have the flexibility you need. Our main goal at Hard Money Mike is to help you succeed in real estate investing! 

We are here to help!

If you have a deal that you are interested in, and want to find out more about 100% financing, give us a call. We are happy to run through the numbers with you to determine if the property will be a good investment. There is a quick form on our website that you can fill out to give a little more information on the property that you are looking at. This form would include information about the property, some details about you, what you are trying to do, exit strategy, credit score, and your reserve. In the end, our goal is to determine if the deal is going to make you money. 

Here at Hard Money Mike we work with “value at” properties and can offer 100% financing today! Contact us to find out more! 

Watch our most recent video Can I Get 100% Financing with Hard Money to find out more!

Pre-Approved: Stop Losing Properties and Start Closing Deals

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Pre-Approved: Stop Losing Properties and Start Closing Deals

Here at Hard Money Mike we have seen a number of clients who are losing deals because they don’t have the financing they need. Whether you are new, or switching directions on your property type, it is crucial that you are prepared. Stop losing properties and start closing deals today! 

How to get the best deals.

In this competitive world, you need to make sure that you are prepared! Those who are not prepared will loose properties, as well as upset those they work with. Whether you are working with a wholesaler or a realtor, your performance and professionalism will greatly impact your future success. Being prepared from the very beginning will not only create good relationships, but it will also provide more opportunities to find the best deals. 

Find the right lenders.

Many new investors focus primarily on finding properties. Although it is important to find and compare properties, it is imperative that you find the right lender first. What do we mean by right lender? Every investor, property, and situation are different. Find the right lender for your needs. Especially as a new investor, finding a hard money lender will be the key to your success. Unlike traditional lenders, hard money lenders often give you more money, require less money in, and provide the flexibility you need to close deals quickly.  

Example:

Client is all in at $170K 

Property is worth $270K to $300K. 

He needs 100% financing

ARV loan  is 62%

As a hard money lender, it is the perfect situation. 

The importance of pre-approval.

Real estate investors need to make sure that they are not only pre-approved, but pre-approved with the right lender for the current deal. In doing so you will close deals quickly and strengthen relationships with realtors, wholesalers, and lenders. For those who are not using the lenders right away, it is important to keep in contact with them so that they know that you are still out there looking for properties. In regards to wholesalers and realtors, it is imperative that you create a good relationship from the very beginning. Get your funding secured today to get to the top of the best deal list. 

Is pre-approval based on a property?

Normally pre-approval means that you are approved for a certain dollar amount. However, lenders do look at the property to make sure that it fits their guidelines. For example, if someone comes in and says that they are approved for $300K, they still might have to bring in some money depending on the property. Investors also need to make sure that they have the right loan for the right property. If you are pre-approved for a DSCR, you can’t use that for a fix and flip property. By obtaining a collection of pre-approvals, it will allow you the flexibility you need. Whether it’s a fix and flip, rental, land split, construction, combination, 1 to 4 unit, or a larger complex, you have the opportunity to close a deal quickly by securing your financing first.

Embrace the learning opportunities.

By looking at your credit score and working with others in the business, you will be a step ahead. More importantly, if you secure your funding first, you are going to not only create wealth, but you are also going to establish relationships. Throughout the process it is important that you don’t get in your head. Take every experience as an opportunity to learn and grow. In doing so, you will learn what you need to do and the things you need to fix in order to be successful. It will get easier over time! Give yourself a little grace during the process.

Here at Hard Money Mike we want to help you create the wealth you want! Contact us today to find out more about pre-approvals. How hard money can help you get on the fast track to success!

Watch our most recent interview to find out more about Pre-Approved: Stop Losing Properties and Start Closing Deals.

Secure 100% Financing for Your BRRRR Investment

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Secure 100% Financing for Your BRRRR Investment

Today we are going to discuss how to finance a BRRRR at 100%.  That means no money out of your pocket for the purchase, rehab, closing or even carry. For the past 14 years we have been helping people get 100% financing for BRRRR. It all comes down to one thing, making sure that the people are purchasing good properties at 75% or less. How can you secure 100% financing for your next BRRRR investment? Let’s take a closer look!

How can you achieve success in this current market?

There are a lot of opportunities for real estate investors right now. Just the other day we had a client who had bought a property in the Denver market for $300K. After putting in $50K in rehab, the property was worth $550K in the end. There are many other real estate investors who have been successful in similar situations in spite of the challenging market. How do they achieve such success? The answer is getting the correct upfront loan. While predictions indicate that there will be more opportunities in 2024 and 2025, now is the time to invest. Now is the time to jump in.

Selecting the right loan for you.

Remember that conforming conventional loans have restrictions that prevent investors from refinancing properties within the first year. However, a rate and term loan, such as a DSCR or conventional loan, allows investors to refinance immediately after getting an appraisal. By having a great hard money lender for your purchase, you will be able to refinance and get cash out of the property quickly and easily.

Find the right hard money lender.

It is crucial that real estate investors work with a hard money lender who can get up to 75%. Just to clarify, the 75% is based on the amount that you can refinance. Here at Hard Money Mike we say 75% because most clients can refinance into a conforming or DSCR at 75%. However, if you’re only able to finance up to 70%, then we will have to match whatever you qualify for on the long term or take out loan. It is important to remember that a BRRRR includes a buy, which is the first loan, and then there is a refinance. The refinance dictates how much a lender on the buy can give you. By finding the right hard money lender you will be on the path to success.

Let’s look at some numbers on the buy side.

The first calculation that needs to be done prior to purchasing a property is determining the maximum loan amount. This can be found by multiplying the ARV by 75% or .75. Once the max loan value is determined, real estate investors can then calculate if the property will be able to qualify for 100% BRRRR financing. 

Calculating Max loan amount.

Purchase price: $120K

ARV: $200K

Max loan: $200K x .75 = $150K 

Will it qualify for 100% financing?

Purchase price: $120K

Rehab: $20K

Closing costs + Carry costs: $10K

It is important to remember that closing costs are not only on the buy, but they are on the refinance as well. Also, carry costs should be added to the total in order to cover a few months of monthly payments, taxes, and insurance on the property until it can be rented. In most cases, investors are able to get the property rented before refinancing, which will in turn lower the carry costs. By keeping the purchase price, rehab costs, closing costs, and carry costs all under the maximum loan amount, real estate investors can finance a BRRRR at 100%. 

Finance a BRRRR at 100% today!

In order to finance a BRRRR at 100%, you need to make sure that all of your costs are less than the max loan amount. It is important to have a hard money lender who understands BRRRR’s. Here at Hard Money Mike we can help you run through numbers to make sure that you are in line to get 100% BRRRR financing. 

Watch our most recent video to find out more about how you can Secure 100% Financing for Your BRRRR Investment.

3 Reasons You Need Hard Money For Your Investments

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3 Reasons You Need Hard Money For Your Investments

Today we are going to look at the 3 reasons why you need hard money for your investment needs. In looking over the past few years, changes in the market have caused banks to shrink their lending pools. As a result, real estate investors are being impacted by both the requirement changes, as well as increasing restrictions. How can you accomplish your goals with so many roadblocks? 

First, Flexibility.

Hard money provides the flexibility you need to achieve success. Unlike banks, you are not required to fit into a box.It can be used for all types of projects including:

  1. Fix and flips
  2. BRRRR/Rentals
  3. Multiple units
  4. Commercial properties
  5. Land

Second, Fewer Qualifications.

 Hard money also has fewer qualifications than banks. The biggest determining factor is whether or not the property cash flows. By having fewer qualifications for investors, it can open the door to endless opportunities. Hard money loans are not based on:

  1. Credit
  2. Experience
  3. Reserves/Down payment

Third, Speed.

Traditional loans can take weeks or even months before everything is finalized. However, using hard money helps you speed up the closing process by skipping a few steps along the way. The old phrase “time is money” paints a great picture of how making the switch can help you get on the fast track to success.

  1. Close in days – not in weeks or months 
  2. Skip appraisal delays and take the fast track
  3. Buy unique properties with less underwriting
  4. Close more properties because many sellers choose speed over price

Contact us today to find out more and what you need to do to get on the fast track to success. 

Watch out most recent clip 3 Reasons You Need Hard Money For Your Investments to learn more!

How to Quickly Calculate Must-Know Real Estate Numbers

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How to Quickly Calculate Must-Know Real Estate Numbers

Today we are going to go over some simple calculations that review what a point is, how to calculate monthly interest, Loan to ARV, and LTV. These are simple things that you will come across when you are talking to lenders about your lending needs. Here at Hard Money Mike we want to make sure that you not only understand what these are, but more importantly we want to show you how to calculate must-know real estate numbers.

What is a Point?

First of all, you are going to hear lenders say that there is a point on this loan, or two points on the loan. What does that mean to you? A point is a percentage of the loan, This is the fee or charge that they have for the loan that you are taking out. You will see anywhere between 1 and 3 points. Meaning that they are charging between 1% (.01) and 3% (.03)  of the loan amount as an origination fee. It is important to know what this amount is because it will not only come out of your pocket, but it will add to your cost at closing.

For Example:

Loan amount is $200K 

Lender charges 1.5 points (1.5% or .015)

$200,000 x .015 = $3,000 origination fee

How do you calculate simple interest and what does that mean for a monthly payment?

If the lender says they are charging 10% (.10), that means that they are charging that amount as an annual rate. As an investor, it is important that you do the calculations in order to determine the monthly interest amount which is based on the loan amount. As an investor it is very helpful to have this broken down into months, because you may only have the property for 6 months instead of a year.  

For Example:

Loan amount $200K

$200,000 x .10 = $20,000 (annual interest amount)

$20,000 ÷ 12 (months in a year) = $1,666.67

$1,666.67 is the monthly interest amount 

Loan to ARV

Most lenders are going to give their maximum loan based on ARV. Just to clarify. ARV is the estimated after repair value for the property once it is all fixed up. It is important to know what the market estimates the property will be worth after all of the work is completed, and are based on current sales in the area. A lot of the lenders are going to give their loan or a loan max based on the ARV. 

For Example:

$400,000 ARV (based on your comps)

Lender maximum loan to ARV is 75% 

$400,000 x .75 = $300,000

$300,000 is the maximum loan amount that the lender is able to lend you.

What is Loan to Value?

A lot of lenders and banks are going to go off of the value of the property as opposed to the after repair value. When they talk about loan to value, lenders will take two things into consideration. They will look at the appraised value or purchase price, whichever is lower. Then they will lend a certain amount based on the current value.

For Example:

Purchase price $300K

Lenders maxim loan is 80%

$300,000 x .80 = $240,000 

$240,000 is the maximum loan amount that the lender is able to lend you.

In conclusion

As an investor it is great to understand what a point is, how to calculate monthly interest, Loan to ARV, and LTV. By learning how to quickly calculate must-know real estate numbers, you will be able to find the loan that best meets your needs.

If you have any questions or would like us to run through some other numbers, contact us! 

Watch our most recent video to find out more about how to quickly calculate must-know real estate numbers.

How to Get 100% Financing For Your Investment Property

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How to Get 100% Financing For Your Investment Property

Many investors wonder how they can get 100% financing for their investment property. The answer is a cross lien. What exactly is a cross lien? A cross lien is when you use another property that you own, or one someone else that you know owns, and use it as collateral for the money that you’re looking to obtain. Today we are going to go over how you can get more money from your hard money lenders by using a cross lien. 

How can a cross lien help?

A cross lien can help you get more money for your projects and reach 100% financing. Even those with lower credit scores and little experience can use a cross lien to get the financing they need. Those with little experience experience struggle with LTV, as well as approval for Gap funding. A cross lien can also work for people who need more than 100% to purchase, rehab, or carry the property. Once the lender  has  the additional security or collateral, then they will be able to give you the money you need. To clarify, it doesn’t mean that you’re going to pay off the liens that are already on the property.

What properties are used for a cross lien?

Investment properties, land, commercial properties, and owner occupied properties are eligible for a cross lien. Anything that has equity in it can be used to create extra security for the lender. Just to clarify, equity is the difference between what you owe and what the property is worth. Typically you see 70% or less on equity. When looking at All in, meaning what you owe now and what you’re putting on the property. This needs to be at or below  80% CLTV. Just to clarify, CLTV stands for the combined loan to value that combines the 1st lien on the property plus the 2nd lien. There are exceptions, however, this is a general rule.

Let’s look at an example.

100% financing is needed for a fix and flip, however, the lender is only allowing 85% of the purchase. The borrower now needs to come up with 15%. Where do they get the extra money? The answer is a cross lien. The lender can use another property that the borrower owns in order to have the security they need to provide 100% financing. If you’re looking into using a hard money lender, then they are going to also look at your credit, as well as your  experience, before approving funding. This may result in only 80% for the purchase and 100% of the rehab. In that case you will need 20% of your own money. Again, a cross lien can help to alleviate the pressure of having to come up with additional money and it can increase your cash flow if you are doing multiple projects. 

What does a cross lien look like?

When using a cross lien for additional funding, the lender will come in and do a mortgage or deed on the property you are buying, as well as put a mortgage or deed on the other property. The other property is either a rental, piece of land, commercial, or even an owner occupied. By using two properties or more, you can get the money you want for financing.

When does the other property get released?

There are times when the property is released or the lien is taken off the 2nd before you pay off the 1st. Maybe that is because you have hit a milestone, or maybe the property that you bought is all fixed up and worth enough now to release the cross lien. Once the cross lien is paid off, then the property can be used to finance another investment.

In conclusion.

A cross lien is an excellent way to get 100% financing for your investment property. Maybe funding is a struggle because of your credit score or your experience isn’t there yet. Cross liens get something done, get something purchased, or get the financing you need to succeed. Remember the cross liens when you’re looking for finance options.

Here at Hard Money Mike we have a number of free downloads that can help you. Visit our website to find out more. 

Would you like to find out more about How to Get 100% Financing For Your Investment Property? Watch our most recent video.

After Repair Value (ARV) Explained – Real Estate Investing

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After Repair Value (ARV) Explained – Real Estate Investing

What is ARV? 

ARV stands for the After Repair Value, meaning, what the property is worth after it is repaired.To put it another way, ARV is the value that a property could sell or appraise for. 

How is the ARV determined?

ARV is determined by three main factors and subcategories. 

First

Determine what you will do to improve the property. This would include any upgrades or additions to the property, and the quality of the repairs. 

Second

Research what the comps are for your property. Comps are properties that are just like yours, but finished. It is imperative that comps are the same area (within half a mile), approximately same size, and have a relevant sales date that is within the last 3 to 6 months. 

Third

Are there any concessions? Concessions are when the seller helps the buyer purchase the property. You might contribute 3% to 5%, and this in turn does impact your bottom line.

Why is ARV so important?

ARV is very important because lenders use a percentage of the ARV to determine your loan amount. For example, if your property has an ARV of $200K, and the lender offers 75% of the ARV, then they will lend you $150K. 

How do lenders determine ARV?

Lenders determine the ARV by running comps. Just like you, lenders will compare square footage, the sale date, and the sales price to properties in the area. 

Be honest and realistic!

It is imperative that you are honest and realistic with your numbers. The more truthful you are, the better it is. An honest ARV leads to more deals, more loan approvals, better terms, and More Money!

 

For more information about ARV’s, watch our most recent clip. 

Contact us to find out more about the Art of Comping and much more! 

Hard Money Vs Banks: Which Lending Option is BEST?

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Hard Money Vs Banks: Which Lending Option is BEST?

Investors are always wondering which lending option is best for their needs and when is it better to use hard money instead of banks? Let’s start by identifying what is hard money. Hard money is asset based lending that real estate investors can use when their credit scores are not up to par with bank requirements. Unlike banks, hard money lenders aren’t looking at the credit scores. Instead, they are looking at the project and the property. Today banks are getting tighter and credit score requirements are increasing. As a result there is a decrease in funding. Have no fear! It is still possible to get 100% financing with a credit score below 700. Let’s compare hard money vs banks to determine which option is best for you.

Who uses hard money?

Hard money is for everyone! From the new investor, to those who have 20 years of experience, everyone can benefit from using hard money. Hard money creates flexibility that many banks can not provide. Whether it’s a small deal in a small community, seconds, thirds, or even land, hard money can help you complete any translation that is asset based. As long as the property is good, with a good exit strategy, then you can negotiate to get hard money lending 

What can we do for you at Hard Money Mike?

Here at Hard Money Mike we are able to provide 100% financing on BRRRR and 100% financing on fix and flips, as long as the ARV is good. For clarification, ARV stands for the after repair value. A hard money lender looks at the value of the property and what it can become based on the ARV. That’s another big difference between hard money and banks. It doesn’t matter when you go to a bank, or what kind of a deal you are getting. Banks will only focus on the LTV or loan to value amount.

Let’s look at an example of hard money vs banks:

 

Property purchase $300K

ARV 600K
Hard Money As a hard money lender, I would feel comfortable lending up to 100% on the deal because it’s a great deal.
Hard money is better than banks when you are basing it on ARV
Banks  If you go to a bank, they will compare the ARV and the purchase price and determine which is lower. In this example, the banks would base their decision on the 300K purchase price. 
From that base amount of 300K, the bank will then require you to put in 20% to 25%.

When you are deciding between hard money and banks, always remember that hard money is best when you have good deals based on the ARV, and when you don’t want to put a lot of money in. This is also true for BRRRR, if you want to find that undervalued property and use a hard money lender to fund 100% of the rehab. Once again, if it’s a good deal based on the ARV in this market at 70% to 75%, and you can refinance it, then hard money has the flexibility that you need. 

Credit score requirements and limitations.

Most hard money lenders do not look at your credit score to make their decision. Instead, they might look at your score to make sure that you are paying, not in bankruptcy, and not in foreclosure. However, hard money lenders will not be concerned by high usage or low scores. These values are not a big deal for hard money lenders. Most importantly, hard money lenders will not kick you out the door because you have a 679 credit score instead of a 680. 

You don’t need to fit into a box.

While banks often have slightly lower rates and longer term options than hard money lenders, banks want you to fit into their box in order to lend. Whether that is meeting their credit score requirements, income requirements, or their coverage ratios, banks do not have the same flexibility as hard money lenders. Flexibility and uniqueness is where you go for your hard money lending. Especially if the property is based on ARV and the value is there. 

3 instances where you should use hard money over banks 

  1. If you want to base your lending off of ARV and have a good deal. 
  2. If you have a credit score that does not hit into the 700s. 
  3. If your income just started or you aren’t 2 years out. 
  4. If you just write everything off. 

What do you need to look for in a hard money lender?

It is imperative that you get a hard money lender who is flexible enough to do your deals when you have a good deal. What is a good deal? A good deal is dependent on whether or not the market is good in the area, if you have a good exit strategy, and a great LTV. Another important factor to consider is if you have a bridge or a lender set up on the other side. Hard money lenders are not looking for deals that are 100% financing with 100% LTV. 

Where do you find hard money lenders?

1. A local person or company: 

This is a local person or company who is lending true hard money. Make sure that they are well established and have a web presence before diving in. Wall Street has taken over the big loans and only accepts investors who can fit into their box. Hard money on the other hand has no box! It provides the flexibility to fit any investor no matter what the deal. 

2. Real estate groups: 

Connect with the investors in your real estate group. They all know some hard money people who they have worked with in the past. This is especially true if they’ve been in this business for more than three years. By connecting with people in the community, you will find hard money lenders who are reliable.

3. Real estate forums: 

Real estate forums are an excellent place to go and ask questions to find out who the hard money lenders are in your area. There is always a need for hard money in real estate investing. 

What do you look for and what questions should you ask?

First and foremost don’t get involved with a hard money lender who has a lot of up front fees. Some may ask for $1,000 to $5,000 down. Don’t go down that path, because they are just collecting fees, not helping investors. Instead, look for people who have experience within your real estate groups and forums. Do your own research to make sure they are funding deals and have some flexibility with their lending. Whether it is a cross lien, second, or even commercial property. It is also important to ask what they will and won’t lend on. Finally, it is important to start working with them and building that bridge. This will help you in the future if you have another deal that needs hard money lending.

Watch our most recent video to find out more about Hard Money vs Banks to discover which lending option is right for you.

We are here to help you with your hard money needs here at Hard Money Mike. Contact us today to find out more.