I got this question off a survey a couple days ago that I thought was interesting and on the mind of a lot of people visiting my website:
“Which is more important, to find a good property at the right price OR to get pre-qualified and have financing lined up?”
Here’s something really important that you need to understand about hard money rehab loans – it’s a totally different game than getting a traditional mortgage!
Hard money loans should primarily be based on the credentials of a specific property – NOT you the borrower (although some lenders place an emphasis on credit). So an HML can’t possibly guarantee you financing prior to you having a property either under contract or that you feel strongly you will have under contract soon.
Very few people really understand this and they think that it’s important to have a pre-qualification letter prior to making offers, when in fact, you don’t need a pre-qualification letter – period.
You can’t give it to the borrower to serve as a proof of funds when you are making offers either. You might be wondering why we have a pre-qualification letter system on our site…
Well, there’s a couple of reasons. First, most people think they need one so we created to help people feel better and more comfortable about going out and making offers.
Next, we wanted to make it clear what the guidelines are in terms of your personal credentials that can dis-qualify you for a loan with DoHardMoney.com.
When you look at our pre-qualification letter, you’ll see that it states the pre-qualification is contingent upon inspection of the property.
As long as non of these situations apply to you, you are qualified for a loan:
1) An active bankruptcy
2) A bankruptcy discharged in the last 12 months
3) Current foreclosure(s)
4) Current judgment(s)
5) Current federal or state tax liens
So to sum everything up, it’s not possible for you to “have financing lined up” prior to having a property picked out because whether you can get financing and how much you’ll actually get are determined by the property itself.
When you are playing the real estate investment game, everything is about the property. You can’t get financing if you don’t have a good deal and you certainly can’t make money without one either.
Here’s another piece of advice with getting hard money rehab loans…
Don’t bother even applying for a loan until you have a property under contract or feel 90% certain you will get it under contract. Because in order to get a final lending decision, the HML has to send out independent evaluators to the property.
These people submit reports back on what repairs need to be done to the property and what the ARV (after repaired value) will be. The HML uses this figure to determine how much they can lend.
You will be required to pay for these evaluations, which are typically $600. If you think you can put in an application to just find out exactly how much financing you’ll get, I’m sorry but it doesn’t work that way.
Paying $600 to see what you’ll get is also a sure way to run out of money fast… if you even have the dough for these evaluations in the first place.
You may have heard the old adage that “in real estate, you make your money when you buy a property, you realize your money when you sell it”. It’s totally true.
Now if you need help with finding the right properties, we put together a comprehensive training, coaching and partnership program that can give you the guidance you need.
One of the pieces is our Property Concierge service, where you’ll get personal help finding and evaluating properties. You’ll also get access to additional financing that can help you get into your deals without having to spend any out of pocket money.
You can view the details of this program and enroll if you feel it’s a good fit for you by clicking on the button below:
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