Hard money loans offer a fast and flexible financing option for real estate investors, house flippers, and business owners who need quick access to capital.
Unlike traditional bank loans, which focus on credit history and income, hard money lenders prioritize the value of the property being used as collateral.
If you're considering a hard money loan, understanding the hard money loan requirements is essential to improving your chances of approval. This guide will walk you through the key hard money loan requirements, the application process, and how to find the right lender for your needs.
What Are Hard Money Loans?
Hard money loans are short-term loans secured by real estate assets. These loans are commonly used by real estate investors who need quick funding for fix-and-flip projects, commercial property purchases, or bridge financing.
While conventional mortgages are usually funded by banks, hard money loans are issued by private lenders like SDC Capital. Hard money loans are ideal for borrowers with significant assets but lower credit scores.
In the next section, we’ll explore the key hard money loan requirements you need to know for a seamless lending process.
Hard Money Loan Requirements
Understanding hard money loan requirements can help you prepare a strong application and secure financing quickly. Unlike traditional lending means, hard money lenders focus on collateral, down payments, and exit strategies.
Below are the major hard money loan requirements you need to consider:
Hard Money Loan Requirement #1: Property as Collateral
Hard money lenders evaluate the collateral property’s value, location, and condition to determine the loan amount.
The Loan-to-Value (LTV) ratio typically ranges from 60% to 75%, so borrowers may need significant equity or a large down payment.
Hard Money Loan Requirement #2: Down Payment or Equity
Hard money lenders typically require 20% to 40% down payment on the property’s purchase price. If refinancing, borrowers must have at least 30% equity in the property.
A higher down payment or equity stake improves loan approval chances and terms.
Hard Money Loan Requirement #3: Exit Strategy
A clear repayment (or exit) plan is a crucial hard money loan requirement. Lenders want to know how you intend to pay off the loan within the short-term loan period, which typically ranges from 6 months to 2 years.
Common exit strategies include:
Selling the property for a profit.
Refinancing into a traditional loan.
Generating rental income to cover the loan.
A well-defined exit strategy increases lender confidence and improves your chances of securing funding.
Hard Money Loan Requirement #4: Financial Stability and Documentation
Although credit scores are less important in hard money lending, lenders still require proof of financial stability to assess risk. Borrowers should be prepared to provide:
Bank Statements – To demonstrate liquidity and financial reserves.
Purchase Agreements – If acquiring a new property, lenders will want to review the contract.
Appraisal or Market Comps – To verify the property’s value and ensure it aligns with the requested loan amount.
Having these documents ready in advance can streamline the approval process and increase your chances of securing financing.
Finding the Right Hard Money Lender
Once you understand the hard money loan requirements, the next step is choosing the right hard money lender for your needs. Not all lenders offer the same terms, so it’s crucial to evaluate their experience, reputation, and loan conditions before committing.
Here are key factors to consider when selecting a hard money lender:
1. Experience and Reputation
Choose a lender with a strong track record in the real estate lending industry. A well-established lender brings expertise and reliability, making the process stress-free.
For instance, SDC Capital has over 35 years of industry experience, providing investors with flexible lending solutions. An experienced lender like SDC Capital ensures not only a smooth borrowing experience but also transparent loan process and fair terms.
2. Loan Terms and Flexibility
While on the topic of loan terms, make sure to work with lenders that can customize loan structures based on your property type and risk level.
If you’re in talks with different lenders, compare loan-to-value (LTV) ratios, repayment terms, and loan durations.
3. Interest Rates
We already know that hard money loans have higher interest rates than traditional loans (8% to 15%). However, rates and fees can vary significantly between lenders.
When evaluating options, take the time to:
Compare interest rates
Identify any hidden fees (e.g., origination points, prepayment penalties)
Review all loan costs upfront to avoid surprises
4. Speed and Ease of Funding
One of the biggest advantages of hard money loans is fast approval and funding—often within a few days.
Ask about the lender’s average turnaround time for loan processing and disbursement. A lender with an efficient underwriting process can help you act quickly on real estate opportunities.