You’ve heard hard money loans are an easier way to finance a home that doesn’t qualify for traditional financing, so why did you get turned down?
It happens. Not everyone is qualified for a loan. But getting turned down for a hard money loan is much less likely than a traditional loan. If you find yourself being told ‘no’ you can’t have a hard money loan, here are some of the possible reasons.
1. You aren’t Making a Large Enough Down Payment
You have to put ‘skin in the game’. Lenders can’t take all the risk. Most hard money loans require a 20 – 30% down payment. If you don’t have enough cash to put down, it could be too risky for the lender, causing them to turn you down.
Your down payment could be cold, hard cash, or equity from a home you currently own. As long as you have the money to invest, you increase your chances of approval.
2. You Don’t Have the Right Documentation
You have to prove certain qualifying factors to get approved for a hard money loan. Even though the requirements are much less than what a traditional lender requires, there are still some.
At the very least, you’ll need the sales contract, a copy of the lease (if applicable), and a current appraisal. If it’s a fixer-upper, you’ll need documentation supporting the renovations you’ll make so the appraiser can determine the home’s after-repaired value.
You may also have to provide income and asset documentation, along with permission to pull your credit.
3. You Can’t Afford the Payments
Like any loan, you must prove you can afford the payments. If you’re buying a rental property and there’s a lease in place, the rent can offset the loan payments. But, if you’re buying a fix and flip or any other property, you must prove you have enough income to cover the cost.
If there’s any question about whether you can afford the loan, it can be harder to get approved. Make sure you have adequate proof that you can afford the loan before applying.
4. The Property Doesn’t Support the Proposed Value
Hard money loans depend on the property as collateral. Most of the focus in qualifying is on the property and not the borrower. If the property itself doesn’t have adequate value or there’s worry it won’t hold its value, then it’s hard to get approved for a hard money loan.
At Save Financial, we do our best to get our borrowers approved for a hard money loan. Our professionals will work with you side-by-side to help you understand what’s needed to qualify. We know how overwhelming it can be to apply for a hard money loan and make sure you get approved. We’ll walk you through each step and help you understand what’s needed to qualify. Sometimes it’s just a matter of tweaking a few things to get you approved. We’re here for you to help you get the funds you need for your homes