I have heard that hard money is based on the property, but the few I have contaced want to know fico and income?
Due in part to the rise in foreclosures, Hard Money Lenders are tightening their requirements.
I think a lot of investors also have a misunderstanding of hard money. At one time, the phrase was probably soley synonymous with no credit or verifications of income/assets. Now, any time someone where hears the the term hard money, this is how they associate it.
The fact is that hard money, true hard money, is a loan solely based on the as-is value with no rehab funds. Ltv is usually only around 55-60%. No rehab funds are escrowed and the borrower pays the points out of their own pocket.
What’s happened is that in addition to these types of hard money loans, lenders now offer rehab loans. Not a chance that conventional lenders would offer these because the risk is way to high. Mainly because the loans are based upon the after repaired value, much lower scores are considered, and income/assets are usually not verified.
Just to add to what was already mentioned about foreclosures; many years ago states had hardly any judicial process for completeing a foreclosure. Now, in some states, in may take a half year to over a year. This is a huge change in risk compared to years back. Thus lenders have to mitigate their risk in a way they feel comfortable. For some this may be checking credit, while for others it may be a requirement of liquid assets.
Like everything else in this business, you have to shop around.
As has been stated, some of the lenders that at one time focused solely on the value of the asset now ask for borrower information such as proof of reserves and a credit score.
But in some cases there’s a benefit to providing that information, apart from the benefit of getting the money.
For example, I know of one HML who, in addition to worrying about the value of the collateral, also looks at reserves and credit. If you have the reserves to carry the deal for six months and a 620 or 680 credit score (can’t remember which it is), he’ll loan you money for six months at 12% with two points. His LTVs are a little higher, and of course, he can close in days.
This is not a bad cost of funds (16% annualized) compared to true hard money which can easily cost 25% when annualized.