Hard money loan underwriting is the meat of the lending process.
During underwriting, the lender ultimately evaluates the property and borrower to determine whether they’re able to close on the loan and move forward with their real estate goals.
But while hard money loan underwriting and traditional underwriting serve similar purposes, the process looks a lot different.
Let’s take a look at how hard money lenders underwrite vs. traditional lenders, and how to determine whether a hard money loan is right for your real estate goals.
What is hard money loan underwriting?
Hard money loan underwriting is the process of verifying the property condition and value, the borrower’s plan to repay the loan, and other factors so they can close on the loan and collect their funds.
Hard money loans are funded by private lenders or funding groups. To understand how hard money works, it’s helpful to compare them to traditional loans.
The traditional loan underwriting process with a bank or other financial institution is generally fulfilling a similar purpose as hard money—to verify a borrower’s ability to repay the loan—but it’s a much more strict and automated process.
This is because conventional bank loans follow specific lending standards set by the government-sponsored enterprises Fannie Mae and Freddie Mac.
FHA loans, another popular loan type offered by banks, are backed by the government, more specifically, the Federal Housing Administration.
When traditional lenders underwrite conventional or FHA loans, they are basing the loan approval on specific requirements set by the institutions involved with them.
These lending terms include strict standards surrounding the following:
- Credit history
- Income and employment verification
- Debt-to-income (DTI) ratio
- Appraisal results
- Down payment amount and savings
Unlike traditional lenders, hard money lenders such as Marquee Funding Group are more concerned about the overall deal, which includes the borrower’s unique loan scenario and the collateral backing the loan.
How do hard money lenders underwrite a loan?
When hard money lenders underwrite a loan, they don’t have to follow specific guidelines or government requirements.
Instead, they leverage their years of hard money and real estate industry expertise to evaluate borrowers individually.
This doesn’t mean there aren’t any standards they follow. It just means they are setting the standards based on each individual property and borrower.
Marquee Funding Group makes individual lending decisions based on our common-sense approach, which involves the benefits to the borrower and the overall merits of the deal.
We will take certain factors and considerations into account with each deal, but it will depend on the individual deal to determine how much weight these factors hold.
What’s your loan scenario?
What are typical hard money lender requirements?
Generally, one of the most important factors a hard money lender considers is the collateral—the property itself.
Evaluation of the collateral usually includes:
- Equity in the property
- Loan-to-value (LTV) ratio
- Property location
- Property condition
The other essential factor in hard money lending is discussing the borrower’s unique situation, including their past accomplishments and failures, current and future goals, their plan, and their exit strategy.
Of course, this factor is unique to the type of borrower. Real estate investors will have different goals than small business owners or first-time homebuyer, etc.
That’s why there are no specific hard money lending requirements because the situations that are best suited for hard money loans range significantly.
Besides collateral and the loan scenario, a hard money lender will be interested in the borrower’s overall creditworthiness. But this is far less important to hard money lenders than it is to conventional mortgage lenders.
Hard money lenders such as Marquee Funding Group are extremely interested in building relationships with borrowers and operating as true lending partners.
Why would you use a hard money lender?
Conventional loans and government-backed loan underwriting require significant documentation and proof of income from borrowers.
Not all borrowers are able to provide the required documentation, yet many still are more than able to repay a mortgage loan.
For these types of borrowers, hard money loans can be the solution.
Hard money loans are perfect for “non-traditional” borrowers, including:
- Real estate investors
- Business owners
- Self-employed people
- House flippers
- Borrowers in need of a bridge loan
- Just about any type of borrower who doesn’t qualify for traditional mortgage loans yet has the assets and income to afford a loan
Private lending is a fast, flexible, short-term solution for those who need to complete a deal quickly, then secure a source of long-term funding.
Traditional underwriting can be a long, drawn-out process, involving the verification of a borrower’s credit history and score, income and employment, debt, home appraisal and inspection, and more.
Even if a borrower is able to qualify, they may not be able to afford the time it takes for a traditional process to come to completion. This is especially true for a real estate investor or fix-and-flipper.
How to get a hard money loan with Marquee Funding Group
Not all hard money lenders are the same. When it comes to hard money loans, it’s important to find a reputable lender with underwriting experience that matches your unique needs.
Marquee Funding Group is the ethical standard in private lending.
We offer a wide range of hard money lending options to fulfill the gap left behind in the industry, including the following:
- Loan-to-value up to 70% (deal specific)
- Loan amounts from $50,000 to $20 million
- Purchase money loans
- Rate-and-term refinance and cash-out refinance
- Owner-occupied or non-owner-occupied consumer or business purpose
- Single family, multi-family, commercial, industrial, and land loans
- Construction, ground-up, fix-and-flip, fix-and-occupy, and value-add loans
We are able to offer our borrowers same-day approvals, and closing in as fast as seven days.
If you’d like us to take a look at your unique loan request, submit it to us today for a quick review.
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