Hard money will absolutely want to pull credit before you are pre-qualified, but the initial conversations should be fine without giving up the SSN. Almost all lenders will want to see some money down and some reserves, 10% down is the norm for hard money.
Credit Criteria
Usually, a minimum credit score of 550 or higher is required to qualify for a hard money loan. However, some lenders may be more lenient and even provide financing to borrowers with a score as low as 500.
The type of loan that tends to be most difficult to get from a bank is a business loan. Banks typically have stricter requirements and higher standards when it comes to granting business loans. They often require a proven track record of financial stability, detailed business plans, and collateral to secure the loan.
People apply for hard money loans because they need quick access to cash without meeting the strict criteria of traditional banks. Lenders such as Lendersa provide these loans based more on property value than credit history, which helps borrowers with poor credit or unique properties.
Hard money lenders require a down payment, often one that's a higher percentage than a traditional mortgage — think 20 percent at minimum, or 30 percent or more.
In order to offer a fast closing time, hard money lenders typically don't look into your credit history. They mainly base the loan amount on the collateral's value. You'll also likely be limited to a 65% to 75% loan-to-value (LTV) ratio — the lender wants to limit its risk in case you default.
Some of the easiest loans to get approved for if you have bad credit include payday loans, no-credit-check loans, and pawnshop loans. Before you apply for an emergency loan to obtain funds quickly, make sure you read the fine print so you know exactly what your costs will be.
The cost of hard money loans is generally higher compared to traditional commercial financing. Hard money loans have a rate of 10 percent to 18 percent. Meanwhile, traditional commercial loans typically have rates between 1.176 percent to 12 percent.
Hardship personal loans are a type of personal loan intended to help borrowers overcome financial difficulties such as job loss, medical emergencies, or home repairs. Hardship personal loan programs are often offered by small banks and credit unions.
This type of funding is considered more flexible than what banks or other traditional lenders offer. Because hard money loans require borrowers to use their assets as collateral, private lenders are often more willing to work with borrowers with bad credit or more modest cash reserves.
This means that the investor must already have a property in mind if they want to be “preapproved” for funding. Once a hard money lender analyzes and approves the property deal, they will provide a Proof of Funds letter which will allow the investor to purchase the property with financial backing by the lender.
If a lender quotes you three points, it means 3% of your loan amount. So, if your loan is $100,000 with three points, that means it's a $3,000 fee.
Finally, hard money lenders do not make consumer loans, so to make sure the lender knows the loan is a business investment, you should set up the real estate under an LLC.
The interest on a hard money loan is calculated based on the interest rate, and the length of the loan. As mentioned previously, you only pay the interest portion of the loan. The principal loan amount is paid back to the hard money lender when the property is sold.
Your lender may ask you to provide a down payment of 10% to 30% (or more) on your hard money loan. Generally, the stronger your credit and financial qualifications, the less of a down payment you'll need to provide. However, a larger down payment may help you access better rates and terms.
A hard money loan is funded by private investors for a term of about 12 months. Sometimes the term can be extended to 2-5 years.
As of 2024, hard money interest rates have spiked up to 9.5 – 12% for first-position loans and 12 – 14% for second-position ones.
A minimum credit score of 670 to 739 is typically required for a $20,000 personal loan. Proof of steady income, including pay stubs, tax returns, and bank statements, is essential. Applicants must be at least 18 years old and legal U.S. citizens. A debt-to-income ratio below 36% enhances loan approval chances.
HDFC Bank customers can get Personal Loans with minimal or no documentation. In fact, if they are pre- approved for a Personal Loan, they can easily apply for it.
Tell your lender about yourself. Private lenders want to know the person behind the numbers, so in addition to a loan application and financial information such as copies of your credit reports and tax returns, you'll also want to include a resume that showcases pertinent experience for your planned project .
Many borrowers rely on hard money lenders because they don't have the time to wait for a conventional bank to complete their underwriting. The real estate market is extremely competitive, and sellers are more likely to accept offers with shorter closing timeframes. Less hassle, less headache.
However, if you default on the hard money loan, the lender can take the property and sell it while the accumulated fund will be used to pay off the outstanding loan.