How do Hard Money Lenders differ from Bank Lenders when qualifying for a loan?
Hard Money Loans are typically a bit easier and quicker to qualify for and close on than Bank Loans.
While both loan qualification processes are similar, involving submitting certain docs on the Property & the Borrower, there are several key contrasts which we’ve narrowed down to the 4 most important differences that make Hard Money Lenders stand out from Bank Loans.
1. Focus on The Deal Itself. Hard Money Lenders are much more focused on The Deal Itself vs. the Borrower’s qualifications. Though the Borrower’s qualifications are important, so long as you keep at least 20% – 35% equity in the property, we’re much more flexible than a Bank.
2. ARV-based LTV Ratios. Hard Money Lenders can lend on Fix & Flips, Rehabs, and Construction Loans based on the ARV (After Repair Value) in many cases. We’ll still typically require that a Borrower brings 20% – 30% down payment toward the Purchase Price of a new Acquisition, or leave at least 35% equity in a Cash Out Refi. However, Hard Money Lenders can also typically fund up to 100% of the Rehab & Construction costs in draws. Banks will rarely if ever lend against anything but As Is value.
3. Fewer, Simpler Docs & Closing. A typically Hard Money Loan’s required docs & closing processes are less stringent than traditional Banks. Since we’re mostly focused on The Deal Itself, and only fund Business Purpose Loans for Non-Owner Occupied Investment Properties, we will almost always require fewer docs to close. Also, since Banks are Federally regulated, they have many more arcane forms & documents required for compliance purposes which we can mostly (if not completely) skip as Private Hard Money Lenders.
4. Faster Closings. Hard Money Lenders can almost always close faster than banks. The main 2 barriers to a Hard Money Loan closing are simply getting in all the necessary docs from the Borrower, and getting the Appraisal. If you as a Borrower come prepared with your docs ready to go, the Appraisal is really the only delay, which can typically be completed in <7 days, making for a realistic 7 – 10 day closing timeline from first conversation to final title transfer (which banks can almost never come close to matching).