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Hard Money Loans & Distressed Properties

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A distressed property for renovation - ECF

 The Perfect Match

A distressed property is one that is being listed by the hard money lender or has entered into the foreclosure process. There is a multitude of reasons why a property is classified as being distressed, but regardless of the cause, this type of real estate presents a significant opportunity for savvy investors to get an ideal purchase price and considerable return on investment. If you’re contemplating acquiring a distressed property, but don’t have the capital  or cash flow on hand to complete the transaction at this time, here are a few compelling reasons why you should use a hard money loan to get the funding you need in a short amount of time so you don’t miss out on a great investment property.

 Pros of Acquiring Distressed Properties

Prior to obtaining a loan, it’s essential to comprehend the overall benefits of acquiring a distressed piece of real estate. When a lender repossesses an asset, they are typically looking to offload it as soon as possible so they can recoup the initial investment they made in the form of the loan. This urge to quickly sell the property usually means that the listing price is much lower than you might otherwise be able to afford in a given location. Additionally, more often than not, investors will generally be able to realize a handsome profit by making renovations and upgrades to increase the home’s attractiveness to subsequent buyers on the market. The sale can potentially be completed in a short amount of time, and if you’re able to keep the rehab window short, you can repay your hard money loan quickly and avoid substantial interest fees. Here’s a closer look at why you should consider a hard money loan for funding the acquisition of a distressed property.

 Quick Approval Process

One of the most favourable aspects of hard money loans is that they are significantly faster than a traditional loan. Your credit score doesn’t weigh as heavily into the approval process. Alternatively, the property’s valuation is most important as it is used as a collateral asset to secure the loan. From an investor’s perspective, this is ideal as you can have access to financing in a matter of days as opposed to the months it typically takes in order to get approved by a bank or similar lending entity. However, it’s worth noting that this type of financing often had  shorter repayment periods than traditional mortgages.

 Enhanced Buyer Profile

Hard money loans enable investors to have cash in hand to offer to the distressed property’s seller, which can be extremely useful if the property is a hot commodity and there are a lot of competing offers being submitted. Having the ability to offer cash provides real estate investors with a certain degree of leverage when it comes to the negotiation process, and the entire loan process can be completed in a short amount of time. This allows private  investors to pounce on last-minute deals, giving them a distinct advantage over the competition in up-and-coming areas where other investors are looking to land deals

 Ideal LTV Calculations

An additional benefit of going the hard money loan route is that the loan-to-value (LTV) calculation differs from those conducted by traditional lenders. This means that investors may potentially receive more funding than they would from another lending entity, even though the LTV ratio may appear substantially lower initially. Conventional lenders are required to follow certain federal guidelines by tabulating loan amounts from the purchase price or appraised value. Hard money lenders, however, have the flexibility to choose the value they want to utilize for the LTV, as they do not have to abide by the federal rules. That means hard money lenders factor in a higher property value, and, depending on the particular circumstances of the given transaction, may be able to consider the value of the property after the renovation process is complete, or the “After Repair Value” (ARV) as opposed to the current value. 

After-repair value (ARV) is a real estate term that refers to the estimated market value of a property after completing any necessary repairs or renovations. It is an important concept to consider when investing in distressed properties.

When using hard money loans to finance a distressed property, lenders are often risk-averse and will look at the ARV when making a decision on whether or not to approve a loan. This is because lenders are concerned with the potential of the property decreasing in value, and want to be sure that they will get their money back if they need to repossess the property. As such, it’s important for investors to understand the ARV of a property before attempting to take out a hard money loan on it.

Express Capital Financing is a direct/nationwide lender of bridge loans and hard money financing as well as small and large balance commercial mortgages. If you are looking to partner with a hard money lender, Express Capital Financing offers pre-approval letters within 24 hours. We’d love to connect with you!


How do I qualify for a hard money loan?

Qualifying for a hard money loan is typically easier than qualifying for other types of traditional financing, such as funding from a bank or credit union. This type of loan is often used to finance distressed properties, and because of this, private lenders require fewer qualifications than they would with a regular loan.

To qualify for a hard money loan, you need to have adequate collateral in the form of real estate or other assets that can be used as security for the loan. You may also be required to show proof of a steady income during the underwriting process, and have a strong credit history.

 What are the risks of a hard money loan?

The most obvious risk of an asset-based loan is the high-interest rate and fees charged by the lender. Because the loans are made quickly, and sometimes with poor credit and collateral, lenders charge higher fees than traditional institutions. Additionally, financial institutions can also call in their loan at any time if they feel that the borrower is not meeting the terms of the agreement. 

What credit score is needed for a hard money loan?

When it comes to hard money loans, credit score isn’t the main factor that lenders consider. Unlike traditional bank loans, which are typically based on a borrower’s creditworthiness, hard money loans are based mainly on the value of the property being used as collateral. That said, in some cases, lenders may still require a credit check and a review of a potential borrower’s financial history in order to make sure they can adhere to the loan terms. This could include a review of tax returns and estimating the debt-to-income ratio of a potential borrower. 

What costs can a hard money loan cover?

Hard money loans can be used to cover a variety of different costs associated with a property, including purchase price, closing costs, repairs, and renovations. They can also be used to pay for marketing and other fees associated with the sale of a property.

When considering this type of short-term loan, it is important to understand the fees and terms associated with the loan. Some lenders may charge an origination fee, an appraisal fee, and other closing costs. These fees will vary by lender so it’s important to shop around for the best deal. It is also important to ensure that you are able to meet the repayment schedule outlined in your loan agreement.

Are there alternatives to a hard money loan?

Yes, there are alternatives to a hard money loan. Depending on the borrower’s financial and credit situation, they may be able to use other financing options when looking to purchase distressed properties.

For instance, some borrowers may be able to take advantage of government-backed loans such as FHA or VA loans with more lenient requirements than traditional mortgages. Other options include seller financing, home equity loans, and some special loan programs from banks or credit unions.

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