Hard money is an alternative to traditional financing. One will usually turn to a private investor or “Hard Money Lender” when they can not qualify for a bank or traditional loan. This may be due to many reasons. You may not be able to prove income, have a challenged credit file or it is just cheaper to get “Hard Money” then to track down a joint venture partner.
A private investor is going to base his lending decision on a few items.
#1 How much equity is in the property? There better be a fair amount of equity. A private investor isn’t going to be bailed out by our government if the deal goes south. His main focus is how bad is it if I have to foreclose. Usually a 50% LTV- 75% LTV will do.
#2 How much are you putting in? The investor wants to know your committed to this property too. Some skin in the game from you will let him know that you won’t walk and leave him holding the bag.
#3 How do you plan to pay this loan off? Your not going to get a 30 year commitment out of a private investor. Your new loan will have a balloon payment anywhere from 6 month to 5 years. The investor is going to want to know what your exit strategy is.
Every loan is looked at on a case by case scenario. There is no magic underwriting book they are forced to follow. The decision to lend will boil down to some good common sense.