Credit Criteria and Hard Money Loans

If you are a real estate investor interested in buying and rehabbing properties, the first step in your real estate investment process will be preparing your finances and finding your financing sources. Operating capital is critical in any business and it is especially important in real estate investing.

Today lenders demand excellent credit for conventional financing. They also place a great deal of importance on your current situation such as time on the job, savings and assets and the value of the property to be purchased. If you are an established real estate investor, this examination of your finances is probably not a problem, but first time investors may find getting financing more difficult.

When you deal with hard money lenders, credit is generally not a consideration in their decision. Having a strong exit strategy and your plans to repay the loan are the important factors for hard money lenders. They will use their gut feelings about the borrower in making a decision more often than crunching numbers.

A hard money loan, also known as private financing, can be your best source when conventional lending does not come through. Interest rates from private lenders are generally higher, but since it is a short term loan this is generally not a major concern for most investors. Private loans are to help the borrower and the lender make money with as little hassle and red tape as possible.

With either method of borrowing, conventional or private, repayment of the loan is important and the property in question is used as collateral. The conventional lender will have standard guidelines such as ownership seasoning. A hard money lender looks at what the property will be worth after rehabbing.

Hard money lenders have different underwriting of loans from conventional lenders as well. However, whether pursing traditional lending from a financial institution or private cash the criteria for the loan remain the same. Collateral, capacity, credit and character are the points that both lenders will look at, just from different perspectives.