A hard money loan can be a great way to finance a property purchase. These loans are generally much easier to obtain than a conventional loan, and the funding can come through within a week. A private money lender can look beyond borrower issues that could hang up a conventional loan such as foreclosures, poor credit scores, and lack of income history. However there are still reasons why a hard money loan application may be denied.
A Private Money Lender Wants to See a Clear Repayment Plan
These types of loans are meant only for short-term use, usually less than 5 years. Since these loans are so short in nature, they require a large sum of money to be due at the end of the agreed upon term. Therefore, the lender will want to know in advance how the money will be paid back. Will the loan be refinanced with a new hard money, conventional, or subprime loan? Will this property be sold? Will another property be sold? The lender will need to see a well thought out plan for paying the money back before approving the loan.
Another reason why a lender may say no to a hard money loan is because the borrower cannot prove that they have an adequate amount of money available every month to make the payments. The borrower needs to show that they have available cash reserves in the bank and also a flow of income coming in every month to make the payments. A low level of cash in the bank is a big red flag to a lender.
This low level of cash in the bank can also indicate that a borrower does not have enough money for an adequate down payment. Some investors start out thinking that a hard money lender will be willing to finance 100% of a property. However, that is not true. Most lenders want to see a 25% investment of equity in the deal.
Please contact us at LendingXpress so that we can help you find the best loan product for your next project. All our brokers have many years experience, and you can rely on their expert advice!