When you need quick financing to take advantage of a profitable opportunity in real estate, hard money lenders are likely to be one of the options you consider. One of the main advantages of hard money lenders in Virginia is that they can move quickly to disburse your loan amount, some even within a matter days. But before they do so, you will need to meet their loan disbursement criteria so that they can be sure that you are capable of paying back the loan. These include:
- Tax Returns: Although a borrower’s credit score doesn’t fully impact whether or not they will receive a hard money loan in Virginia, the lender will want to see the previous two years of tax returns to get a general sense of income. For example, if a borrower is asking for a loan of $500,000 but the tax returns show an income that can’t support the monthly loan and interest payments, this will be a consideration factor for the lender whether or not to grant the loan.
- Personal Financial Statement: Some lenders will also check your debt to income ratio. This essentially means that all your existing debts will be compared to your income to determine whether you will have the potential to repay the loan. Even though hard money lenders are less stringent than banks in their underwriting process, they still want to ensure that loan is secure.
- Property Resale Value: This is the most important factor that will influence a lender’s decision. The property should have a resale value that will allow it to easily net a profit and repay the loan amount. If it is indeterminable whether the property will earn a profit, then the lender is likely to not sanction the loan. Most hard money lenders will require a first lien position. This essentially means that you guarantee the lender that his loan will be paid off first when the property is resold.
- Experience: If you have flipping experience, this will help the lender feel more confident in your ability to manage the project in an efficient way and get in and out of the investment within nine months. Time is of the essence in fix and flips and if a project drags on and requires loan extensions, profits are eaten up and the lender may feel that the borrower’s ability to pay off the loan is compromised. Although a proven and profitable track record is not a concrete requirement in qualifying for a hard money loan, it definitely does help. A successful string of flips may position the borrower to be able to negotiate loan terms as well.
- Organization. A lender will take notice if you come prepared with a well-organized loan request package. The package should include your LLC organizational documents, the purchase contract for the property, building plans and draw schedules at a minimum. If the lender sees that you are organized about the project, they will be more confident that you will be timely with your payments.
If you are looking to work with hard money lenders in Virginia to grant you a loan, keeping the above- mentioned points in mind will better prepare and position you to qualify for financing.