Commercial Real Estate Advisor

Myths vs. Facts: Hard Money Lenders Perform Very Little Due Diligence

True or false: Hard money lenders look only at the property they are underwriting, and do NOT look at the investor?

In short, the answer to that question is “false.” For all lenders, even conventional lenders, the most important factor in any loan is the underlying asset to be mortgaged. This is especially true for hard money lenders. On a stabilized asset, with a good debt coverage ratio, a hard money lender will rarely, if ever, ask for any personal financials. The property secures the loan, and the lender typically lends to an entity, rather than an individual or group.

This structure, however, does not mean that the Lender ignores whether or not a borrower can repay the loan and make timely monthly payments. For example, a loan on vacant land would likely be a scenario where some sort of personal financial data may be requested as the property itself would not be producing any income to cover the monthly debt service.

Terms and Due Diligence

The terms of the typical hard money loan are simple: The amount given to a borrower is based on the value of the property being used as collateral. Generally, terms are NOT based on the borrower’s creditworthiness, which is why so many commercial real estate investors appreciate the lack of paperwork involved to get the loan closed.

The lender will scrutinize the potential in the property and determine whether or not there is enough value in the asset to justify the loan at the terms they are willing to offer. As with any other lender, hard money lenders only fund investment properties that they think will succeed.

Does it mean they don’t consider your creditworthiness at all? In a word: No.

The long and short is this: Hard money lenders put a lot of emphasis on the property, but they also base their terms on the results of due diligence and offer different options from borrower-to-borrower based on their findings.

H&O Capital Funding has helped countless real estate buyers, sellers, lessees and lessors achieve their goals. Our legacy is unwavering commitment to the communities we serve. Houlihan & O’Malley Commercial Real Estate Services specializes in four distinct, yet overlapping, areas of business: Commercial Brokerage services, Private Mortgage services, Appraisal Services and Advisory services.

For more information on loans that we offer, visit our website.

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