Hard money lenders ask different questions from traditional lenders. You can't approach one simply expecting that a high credit score will be enough to get a loan. Instead, they look at you, your proposed purchase, and your equity to answer one basic question: Are you motivated to repay the loan? To this end, here are five of the most common questions that you can expect to be asked:
Hard Money Lender Question #1: How much can you put down?
Traditional lenders make loans with low down payments since they know that is what borrowers want. Hard money lenders, on the other hand, are looking for you to truly invest with them and will expect higher down payments.
Hard Money Lender Question #2: What's the asset worth?
Right in line with your down payment, private lenders look at the underlying value of the asset. If you can show that the asset you're buying is worth significantly more than your borrowing, it is a good candidate for hard money. Some hard money lenders will even look at the building's post-improvement value instead of its value as it stands when you apply for the loan.
Hard Money Lender Question #3: What really happened with your credit?
In the private lending world, credit decisions aren't made on the basis of a credit score. It's completely possible to get declined for a hard money loan with a high credit score while someone else with borderline credit gets one. As such, be ready to discuss your credit history with the understanding that a private lender can look at what you've done in the context of what you will do moving forward instead of being exclusively focused on the past.
Hard Money Lender Question #4: What's your exit strategy?
Typically, hard money lenders structure their debt for the short- to middle-term. As such, they will want to know what your plan is to replace their financing by either selling the asset or having it taken out with a more permanent loan.
Hard Money Lender Question #5: Do you need to close in a few weeks... or a few days?
Hard money lenders don't just make debt available on properties that banks won't touch. They also are able to make lending decisions at a pace that leaves the rest of the real estate lending community behind. Typical loans close in under a month while it's entirely possible to get a loan closed in a matter of days if all of the pieces line up smoothly.