loan. Typical funding dates for conventional lenders are often set thirty days into the future, which can be an eternity in the fix and flip culture.
Since many new fix and flip investors may lack the resources to fund their own projects, hard money lenders can provide a solution to their funding needs. But how does one work with a hard money lender? Here are some practices for securing the financing you need when you need it.
1) The single most important thing you can do to ensure financing approval with a hard money lender is choosing the right property in which to invest. Unlike traditional lenders who focus intently on your personal credit with a loan application, hard money lenders will be more focused on the value of the property you wish to finance. Additionally, hard money lenders will take into consideration the value of the property after repairs (ARV) rather than simply looking at the value of the property as it currently stands. This means that you must have a good eye for estimating the real value of your investment property, because your hard money lender will most likely be very well informed as to how much property value realistically increases with performed repairs. If you find a property that is likely to make real money, it will be much more likely that your hard money lender will be invested in the deal as well.
2) Have a realistic plan for how to flip your property. While it is the dream of every fix and flip investor to find that sweet property that will sell the moment the paint on the final repair dries, the reality is that often you will need to wait for a time before flipping your property. Having a set of comps of similar properties that have sold in your market available for review by your hard money lender will go far toward helping you to close the financing deal. Demonstrating your clear and concise strategy for re-sale shows your lender that you are serious about your investment and prompts the lender to be serious as well.
3) Have your paperwork ready. While it was pointed out earlier that your hard money lender will be more focused on the value of your property than your own personal credit, you will still need to provide some information regarding your financial situation in a meeting with your lender. This is to be expected, considering that you will be entering into a financial agreement. While the rules of hard money lenders are much more lenient regarding your personal credit score, it is best to be prepared with basic financial information for your lender.
4) Get an estimate. Part of your lender's evaluation will involve figuring out a reasonable ARV, as stated earlier. To aid with this task, it is a wise practice to have a reasonable estimate of the cost of repairing your investment property from a contractor. In fact, as many contractors provide estimates free of charge, why not include a couple of different estimates to go that extra mile? This will demonstrate your commitment to your project, which will enhance the desirability of your proposal to your lender.
5) Be proactive. Speaking of enhancing the desirability of funding your loan in the eyes of your potential lender, it is a good practice to check in with your lender often to show your level of involvement and enthusiasm for the project. Return calls from your lender promptly, and follow up with any requests for additional information about your property immediately. Lenders appreciate professionalism as much as you do. So, keep your interactions on a friendly, professional plane.
Using these tips will help ensure you get the funding you need in the quickest possible way. And this will lead to a successful fix and flip investment for you and for your lender. For more information about fix and flip funding options, please contact us. We look forward to funding your project.
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