The most popular type of funding for fix and flip properties is hard money. Hard money loans are short-term bridge loans that are mainly used for real estate transactions. Compared to a traditional loan, hard money loans provide fast capital, an easier approval process and greater flexibility in repayment.
So, how do you go about getting this funding for your next fix and flip project? We cover all you need to know below.
Qualifying for a Hard Money Loan
Hard money loans are much easier to get than traditional bank loans. Most hard money lenders can close a loan in 10 days or less. Here are the steps to getting funding for your real estate investment.
Build relationships with the right people
Hard money lenders prefer to work with people they know and trust. It’s best to start building relationships with lenders before you ask for money. When you do find a property that you are ready to invest in, your chances of getting funding are that much higher. The good news is that once you work with a lender and things go well, you automatically build a good reputation for yourself as a borrower. This is why many borrowers tend to work with the same lenders, and vice versa.
Get a conditional approval letter
When you find a hard money lender you want to work with, it helps to get a conditional approval letter from them. Conditional approval letters are similar to pre-approvals that come from the bank. It doesn’t guarantee that you’ll get the money, but it shows that the lender is mostly satisfied. This allows you to take advantage of the right properties.
Fill out an application
You still need to fill out an application to get a hard money loan. Some lenders will ask for two years of tax returns, two months of bank statements, a copy of your driver’s license and a statement of your owned real estate. Things like income and credit score don’t matter nearly as much as they would for a bank loan, but some lenders do consider these factors as well. Fortunately, private lenders are more flexible and will work with those who have bad credit.
Assess the value of the property
Hard money loans are secured by real estate. Lenders often request a Broker’s Price Opinion (BPO) or appraisal to determine the ARV (after repair value). They will also evaluate how much work you plan on putting into the property and verify that your budget is realistic. As long as everything checks out, the lender should agree to the transaction and borrow you the money. The lender makes money from the interest you pay over the life of the loan.
First Equity Funding is an asset-based real estate lender that works with people looking to buy and fix residential and commercial properties. To learn more about using our services as part of your real estate financing strategy, contact us today.