How hard money loans work

Credit Inquiries: Hard vs. Soft Pulls

September 11, 2024 by Kyle Sennott Leave a Comment

A businesswoman with a magnifying glass examining a credit history

Our hard money loans have a few underwriting requirements. For example, we don’t verify income and are not credit score-driven. That does not mean that our borrower’s previous payment history is irrelevant to us. We do take a look at their credit history – even if we are aware that it might not be stellar. Most of our borrowers are perfectly fine with it, but a few are hesitant. One of their concerns is putting an inquiry on their credit. “Do you do a hard pull or a soft pull?” they ask. Let me clarify some confusion about hard and soft credit pulls and give real-life examples of each.

What is Loan-to-Cost Ratio and How It Affects Your Loan?

September 8, 2023 by Kyle Sennott Leave a Comment

Private Lender Calculating Loan to Cost Ratio

If you discussed a deal with a private lender, you might have heard a term “Loan-to-Cost Ratio.” Private lenders use the Loan-to-Cost ratio as a key underwriting metric to assess risk, determine loan amount, and evaluate the borrower’s commitment to a real estate project. It helps them make informed lending decisions and structure loans that align with their risk tolerance and lending criteria. However, many novice borrowers and some experienced investors do not exactly understand what loan-to-cost ratio is or how to calculate it. So let’s demystify it.

The Role of Reserves in Private Lending

May 16, 2022 by Kyle Sennott Leave a Comment

Reserves are money left at the borrower’s disposal after they’ve made the required contribution towards the transaction.

Another requirement of any lender with sound underwriting standards is adequate reserves. Reserves are money left in the borrower’s disposal after they’ve made the required contribution towards the transaction. We often run into potential borrowers who are ready to go “all in” and invest their last dime in their fix-and-flip transaction. They effectively become a ticking time bomb ready to default on their obligations to their lender, their state, or their other creditors. Even worse, they are putting themselves in an unfortunate position where, instead of making money, they can lose it.

Draw Schedule in Private Lending: How to Get It Right

November 15, 2021 by Kyle Sennott Leave a Comment

Draw Schedule in Private Lending: What Is It and How to Create It

Many private lenders base their loans on the after-repair value of the home. An efficient and orderly renovation process is essential to reaching that value. This is why private lenders often hold the construction budget in escrow. By releasing this budget to the borrower in a series of draws, they ensure that the renovations are indeed taking place. The document that governs that process is called a draw schedule.

In private lending, a draw schedule is an agreement between a borrower and a lender on how to manage construction reserves held by that lender. It documents:

Direct hard money lenders vs traditional banks – top pros and cons analyzed.

March 22, 2021 by Kyle Sennott Leave a Comment

Real Estate investor Thinking About The Pros And Cons Of using hard money

For those new to hard money lending, using private funds for the first time might be intimidating. Direct hard money lenders work differently from traditional banks. However, few new borrowers understand these differences. Like everything else in life, hard money lending has its pros and cons. Hard money loans are not for everyone and not everyone would qualify for them. However, working with a direct hard money lender vs. a traditional bank could offer flexibility and leverage not available anywhere else. Think about hard money lenders as a narrow subset of mortgage companies that provide a unique type of financing to borrowers in very specific circumstances.

What Is Asset-Based Lending in Real Estate?

March 2, 2021 by Kyle Sennott Leave a Comment

Private lenders (alternatively referred to hard money lenders) are a narrow subset of mortgage companies that specialize in working with real estate investors. The financing that they offer is asset-based. As the name suggests, asset-based financing is financing that is secured against an asset or collateral. Asset-based financing has a long history that goes back to ancient times when almost anything of value could serve as collateral. In modern times, the most common assets for businesses to borrow against are accounts receivable financing, inventory financing, equipment financing, or real estate financing. Our focus is asset-based lending for real estate investors.

How hard money loans work

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