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Hard Money can be a fast way to fund everything from residential property, to industrial properties to new home construction. I will not get into every aspect of hard money but I will give you a general frame work that your brain can understand.

First of all most hard money lenders let you to finance up to 65% of the value of the home. If the loan is for rehab purposes, the lender will use the after-repaired value of the house as a frame of reference. I have seen occasions that went as high as 75% but 65% is typical.

These loans are per case basis and very flexible so there is a lot of space if the package works. It can be a set back if you are fresh to investing but luckily that can usually be offset with adequate cash reserves and a good plan of action.

Lets look at an investor rehab loan to visualize how the numbers work.

Lets say you came across a beat up old home in a good neighborhood where homes sell for $100,000. The seller walks you through the home and you determine that the property needs around $12,000 in work. You've gotten pre-qualified for a rehab loan and want to know what the maximum you should pay for the house.

Lets keep it basic, you will want to take $100k x 65% - loan costs repair costs/holding costs = Purchase price. Loan costs, for hard money loans, run from 8-13% of the total loan amount. They are not inexpensive but its less money than you will pay to a partner! For now we can assume costs of 10% and holding costs of $2,000. Given those numbers, you probably should not invest more than $45,000 for the house. If you decide to pay more, that just means more money out of your pocket to complete the project.

Here are a few great tips you can use to maximize the likelihood of getting approved for hard money loans, in general:

1. The more equity in the property after the loan, the better,
2. The higher your credit rating, even better
3. The more credit history you have, the better!
4. The more liquid assets you can show that you have personally or have guaranteed access to (lines of credit, partners, rich uncles...) the better
5. The more populated the area, the better
6. The faster the properties in that area sell, the better
7. The more solid the appraisal value, the better! A lot of hard money lenders like to use fire sale values as the basis point of the loan so dont be stunned. This is definitely not the time to use stretched values.

All in all, this is a numbers game. Do not allow yourself to get attached to a property if the numbers don't make sense. Hard money lenders can be flexible but present them a deal where the numbers don't add up and it could cost you a relationship. Credit doesn't always matter but it does help, tremendously, if you can show good credit history.

Fred Hopkins is an 8 year mortgage veteran specializing in hard money loans and mortgage refinancing. For more information on the loan programs he has available, visit http://www.mountaintopmtg.net

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