If you compare with the traditional bank loan process then you can understand that the hard money loans are fairly easy to obtain. The time of approval for a hard money loan can be completed in one day and in many cases, it takes only 1 week to transfer the fund. Generally, bank loans need up to 45 days or more for approval. A hard money lender can still offer you fund if you have issues such as low credit score, no income history, and much more. But sometimes some issues may the cause for your application rejection.
Lack of Down Payment
A very traditional reason for a hard money loan application being denied is the debtor lacks a down payment to buy a property, or may they don’t have enough equity to debt against in an asset they already own. Many new real estate investors mistakenly think that they can get full financing from a hard money lender but this is not right. A maximum number of hard money lenders need the debtor to have at least 25% investment in the deal. Basically, lenders want to see that the debtor has some of their own fund invested in the deal.
One more important thing a hard money lender like to analyse is the debtor ability to make the agreed upon monthly loan payments. The ultimate way for the debtor to show enough income to pay the monthly payments as well as having some funds in the bank. If the debtor does not have enough income to repay the loan then it may the cause of red flag from lender’s side. If a debtor has short of cash then he needs to make partner who can prove reliable income.
Wrong Exit Plan
Basically, hard money loans are for short terms use. Normally, it takes 1 to 3 years for closing but the time may be increased in some special cases. Since this loan program is short term, the left balance on the loan amount will be due at the end of the term. A reliable exit strategy is very important in order to pay off this balance. A hard money lender will want to know the debtor’s plan about the exit plan.
It is uncommon for debtors to use a hard money loan when their present credit or other issues prevent them from qualifying for a traditional loan program. Debtors can work to clean up issues over the course of a couple years and then qualify and refinance into a traditional loan program.