When you are looking for investment property loans, there are certain criteria you have to meet. The criteria will vary depending on the type of loan you seek—traditional or hard money. Before you apply for any kind of investment property loan, you may want to conduct some research to see what you need to do before the lender will even consider your application.
Qualifications for Investment Property Loans
Before an investor can obtain a loan to either purchase a property or upgrade an existing property, he must meet certain qualifications. The extent of those qualifications depends upon whether the investor seeks out traditional or hard money lenders. Traditional lenders require a substantial amount of paperwork including but not limited to the following:
Financial statements of the business
Proof of income for individuals
Application fee is possible
On the other hand, if an investor applies for a commercial hard money loan the only thing that will interest the lender is the value of the property. Unlike traditional lenders, hard money lenders are not interested in the borrower’s credit report or income but only whether the property has sufficient value to cover the loan.
Traditional or Hard Money Loan: Which is Right for You?
As a new investor it is important to assess your individual circumstances before you decide which choice is right for your business. There are several things you may wish to consider during the course of your personal assessment including:
Your credit score
The purpose of the loan
The type of property in question
How quickly you need the funds
How long you have been in business
All of these factors will help you make a decision about the type of investment property loan that is right for you. For instance, if you need the funds fairly quickly or have a low credit score, commercial hard money lenders are your best option. The same holds true for investors who are interested in purchasing depressed properties. While this is not to say that traditional lenders will not finance depressed properties, but the difference is that hard money lenders will finance 60-70 percent of the projected value of the property after all renovations are complete while traditional lenders will only finance based on the actual value of the property at the time of purchase.
Assess, Evaluate and Implement
The choice you make needs to be contingent upon the results of your assessment and evaluation. You should weigh both options before making the decision that will provide your investment with the highest level of profitability in the shortest period of time. You do not want to have the mindset that traditional financing is the best way to finance your commercial investment loan needs because there are several instances in which commercial hard money lenders can provide a better choice. Review all of the information you have at hand and make the choice that can potentially provide you with the highest level of success and profitability.