Finding financing from a hard money lender wasn’t all that difficult sometime back. Almost any rehabber could find financing for 70% of the After Repaired Value of a home.
Of course, all this has changed now since the hard money lenders are looking more strictly into both the viability of the deal as well as the strength of the borrower too.
Thanks to these sweeping changes, a number of questions might surface. However, it’s a good idea to understand what is happening thus setting expectations for rehabbers even if it might be difficult to handle.
Gone are the days when a buyer could get 100% financing from a subprime loan program with a score of 550. Most of them did not even bother to check what their borrowers looked like on paper because every deal closed at the drop of a hat. Foreclosures didn’t seem much of a problem while investors made money from fix and flips.
With the credit markets tightening up, now rehabbers will review both the buyer and the property itself. Equity will not be enough but a score of 600 to 650, cash on a loan amount of 5 to 10 percent, 2 months of pay-stubs and bank statements as well as the property location will be necessary to be considered for a hard loan.
What is also clear is that volume, in of hard money loans, is all but over. Now, only the best deals are picked where borrowers will not default on their loans.
That said, and while this might sound discouraging, there is still money to be made from rehabbing but there’s a clear need for both the deals and the borrowers to be rock solid.