How to Get a Hard Money Loan: 5 Requirements

You want to secure a hard money loan for your investment but you don't even know where to start from, the criteria and everything needed. This article will walk you through the five important things every lender will need before they approve your loan but before getting into that let's look at what hard money loan is. Hard money loans are quick and flexible loan options that allow you to successfully venture into real estate, house flipping and other related things, provided by private lenders instead of banks. 

It's called hard money because it's backed by hard assets such as real estate. Every lender has some specific requirements for borrowers that are not subjected to bank regulations. The details of how the loan works vary from lender to lender but most lenders will look for certain qualifications before they approve the application. In this article, we will look at some of the requirements that are common among hard money lenders. 

Click here to learn how to avoid mistakes in the loan application process. 

Down payment

Hard money loans usually depend on the anticipated value of the property after the whole project is completed. In situations that involve a real estate development or improvement project, the property's value at the time of purchase also called as-is value may not be enough to cover the losses of the lenders if you are to default before finishing the entire project. For instance, if you are offered a loan of $500,000 on a property that is currently at the value of $400,000 and you unfortunately default, the lender may have $100,000 or more in losses. 

Lenders want to borrow money so they will earn some profit from the investment. This will protect the lender and encourage the borrower to commit till the end of the project. Hard money lenders will ask you to drop down payment. The down payment amount usually depends on factors such as the type of property, borrowers history with that same lender. The minimum requirements for hard money loans may be higher than traditional lending because they are more willing to take risk. 

Visit https://www.bafin.de/EN/Aufsicht/Fokusrisiken/Fokusrisiken_2025/RIF_3_Unternehmenskrediten/RIF_3_Unternehmenskrediten_node_en.html for more insight on loan default risks.  

Liquid reserves

Liquidity is the process of converting assets into cash quickly without losing its market value. Money that is kept in a bank is a liquid asset because the owner of the account can withdraw or transfer it at any moment. Stock and other assets are less liquid because you can readily convert them to cash as fast as you can and pay brokers. Moreover, stock valued at $5,000 if converted will be less than $5,000 in cash. Real estate is often not considered as liquid assets because it takes time to sell it. 

Liquid reserve is the amount of cash or cash equivalents and other assets that a borrower can access. The lenders will want to make sure that the borrower has enough liquid reserves to manage the project and to pay the debt. The more liquid reserves you have, the higher your chances of getting the funds. 

After-repair value

ARV is the estimate of a property's value in the market once the borrower finishes the renovation or improvement of the property. This term is common among home flippers and rehabbers where the main objective is to sell the property after completing the project. After repair value is calculated by looking at the recent price of comparable properties based on factors such as location, age, size, construction style, condition, whether it needs repair, upgrade and more. 

Lenders will compare the after-repair value of the property and it's as-is value when evaluating the loan application. The greater the difference, the more likelihood of getting the funds. ARV can also determine the amount of credit the borrower can get. 

Click here to learn more on how to calculate ARV. 

Loan limits

Every lender has a specific limit when it comes to the amount they are willing to lend. A hard money loan lender typically has a minimum hard money loan amount they give and set a maximum. The majority of them set the maximum amount they will give at 70% ARV. For example, if the lender determines that property has an ARV of $500,000, they will be willing to lend at least $350,000 for that project. This amount is enough to complete the project. 

Investment history

Sometimes, even if you have a history of successful real estate projects, there is no 100% assurance you will get the loan. But still, it can help increase your chances of getting approval easily and on better terms. If for instance you are a beginner or this is your first fix-and-flip project, you can still qualify for a loan but before securing the funds it's good to lay out a well-thought-out plan on how you will complete the project. 

The lender will ask for a detailed explanation of everything you plan to do from the instance you close the loan deal to when you sell the property. Consider getting a few small projects so you will develop a relationship with the lender. What usually constitutes a successful project looking at it from the lenders point of view is the lender getting their money back with the promised return on investments. Keep in mind that each lender may have a different criterion but the majority of them will consider investment history. 

Conclusion 

Getting a hard money loan approval is most times easier than obtaining a traditional loan because it doesn't have many criteria compared to the traditional ones. But remember this is a short loan that is handled by private investors. While each lender has criteria specific to them, the general requirements they have in common include, the borrower will drop a down payment, have liquid in reserve, good investment history, after repair value and loan limits. Before applying for the loan, make a thorough assessment to determine whether you can finish the project successfully without defaulting.