Qualifying for a hard money loan can seem to be difficult, especially if you are new to this area. Understanding and working on the basics of hard money loans will help you improve your chances of qualifying for a hard money loan. Of utmost importance is for you to understand what hard money loan is all about.
Basically hard money loan is a type of mortgage that is used in both residential and commercial lending. Hard money in essence is a form of alternative financing. It is the best option to use if you need a loan quickly where your traditional lenders are not able to approve a loan for you. The lender of a hard money loan will supply you with the money as long as you meet the strict lending requirements.
Here are some of the strict requirements that you have to meet to qualify for a hard money loan.
First Lien: A hard money loan cannot be used as a second mortgage. This means that the borrower will have to work with this type of loan only because the lender will not lend to a person who needs a second mortgage due to lack of equity. The lender wants to be the first person to recoup his proceeds in case of default by the borrower.
Equity: Hard money lenders will normally not lend more than 60 or 70 percent of the home’s value. You will be required to put down between 30 to 40 percent of the loan at close in cash. For this reason this type of construction loan is suited for people with access to cash.
Cross Collateral: This is provided for by the hard money lenders to help the borrower qualify for the loan using a different property owned by the borrower. A cross lien is used to serve as collateral for the hard money loan.