Preparing your documents for a hard money lender can feel overwhelming. After all, this isn’t a traditional loan process and you have probably heard a million horror stories that sound more like a mafia movie – that’s not reality in most cases.
Know what is the process for hard money lenders in California.
4 Keys to Being Successful for Hard Money Lenders in California
1. Credit Scores and Creditworthiness
I know what you are thinking; you’re going to a hard money lender because you don’t want to deal with the lengthy credit approval process required in traditional financing. Why does a hard money lender need a credit application?
Regardless of your credit score, the final loan is based on the package deal and not your credit score. That being said, hard money lenders can set their rules as they wish when determining a good financing fit. As a result, many are now requesting a credit application and have a floor credit requirement, in some cases around FICO 550.
What the lender is really looking for when considering your credit is finding out if you have any serious derogatory issues such as a foreclosure or judgments against you regarding investments or properties. A lender may not care if your car payment was late as long as all mortgage payments are made on properties and you don’t have a history of tenants suing you.
2. Application Process
The application process will vary from lender to lender but expect it to move quickly. This is an advantage of hard money lenders; approval can be determined on the same day if everything is in order.
Expect to complete the approval to run credit document, a standard application that includes your personal and business information, proof of assets and the business plan. If you are planning on seeking hard money financing, it is wise to have all this information readily available so you can quickly navigate through the application and provide the lender everything without having to go back with supporting documents.
3. Make The Business Plan Comprehensive
The entire package includes the business plan. This plan reviews the property details and what the current market conditions are for this area. It uses data to forecast where the market is going as well. After all, you are doing this to make money so the market should be going up.
The business plan also includes the plan for the property, meaning what you will do with it. Is this a fix-and-flip or a rehab-and-rent deal. Explicitly review these details and provide contractor estimates, timelines and the return on investment you will see for the work done on the property. Know what the potential resale price is or what your anticipated rents will be.
Finally, in the plan explain your experience and ability to execute the plan. This is a business venture and the hard money lender wants confidence that they aren’t handing hundreds of thousands of dollars to someone who can’t get the plumbing to work. Detail both your professional experience and investment property experience in the plan.
4. Shine in the Presentation
Not every hard money lender or deal will require a presentation. However, if you are new to the lender expect to meet in person, shake hands and defend your plan. Chances are they already have their decision made but they want to see how you present yourself to solidify the deal.
Know your plan inside and out. It is entirely possible and okay that you hired someone to write the business plan for you to make it shine. But make sure you understand every detail of the plan and are able to explain and defend your proposition.