How Do You Get Approved With a Hard Money Lender?


Quick Answer

Approval for a hard-money loan requires collateral. Most hard-money lenders loan a maximum of between 50 and 70 percent of the collateral's value. Hard-money lenders intentionally keep the loan-to-value ratio low so that it is easier to recoup losses from a borrower's default through the collateral's repossession and sale. Without collateral that has a sufficiently low loan-to-value ratio, a hard-money loan is impossible to obtain.

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Full Answer

Qualification for a hard-money loan is not based solely on the collateral's value, though this is the primary factor in all hard-money lending decisions. Hard-money lenders typically verify the borrower's income and credit history as well, but do not give these factors as much weight in lending decisions as traditional lenders. A hard-money lender usually approves loans that traditional lenders turn down due to bad credit or lack of sufficient income, so long as the borrower's collateral is valuable enough to be sold at a profit in the case of default. Hard-money loans are often used for real estate. Hard-money-loan interest rates are much higher than those of traditional loans, and repayment is usually required on a one- to five-year payment schedule. For these reasons, borrowers who qualify for traditional loans rarely use hard-money lenders.

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