Just Starting Out? Here's a Tip for Working with Hard Money Lenders

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It may sound strange, but keep your LTVs as low as reasonably possible. Doing so not only helps you get a hard money loan, it’s usually going to be a better buy or investment for you too. 

Many investors seek hard money loans above the LTV the lender is offering. One reason for this might be because the investor is wanting to wrap the closing costs, loan costs, or other fees into the loan. Another reason might be the subject property purchase price and rehab costs may exceed the lender's LTV parameters.

Also, don't try to "fit" the numbers into the LTV parameters. This occurs when the borrower won't increase the scope of work because doing so will put the borrower over the LTV limit with the lender and the borrower is trying to maintain the lowest LTV possible in order to avoid brining any money to closing. This will not work because the lender will eventually determine the scope of work is inadequate for the loan situation.

Anticipate the need for some money at closing. Don't expect to be able to wrap all of the closing costs and fees into the loan. Even with a good LTV ratio, the lender is almost always going to ask for some money from the borrower at closing. If you are looking to do a deal without putting any money into it you are probably wasting your time and efforts, at least in working with a hard money lender.

99.9 out of 100 times the investor will need to bring some money to closing.

It’s almost unheard of in today’s real estate market for a buyer to be able to borrow all of the money needed and also be able to wrap in all of the loan costs and fees without bringing any money to closing or having any “skin in the game”.

Most lenders require the borrower to have some money into the loan. Whether it’s paying for closing costs, loan fees, or making the up difference in the LTV, a borrower should always anticipate the need for some money at closing.

By following these tips and avoiding these mistakes when working with a hard money lender it will inevitably result in a much smoother and easier transaction for everyone.