Do Hard Money Loans Turned Down
Did your deal get turned down for funding with DHM? Do Hard Money loans money for many kinds of real estate investments and through a varierty of loan programs, so sometimes confusion may result. Perhaps you’ve been reading a few posts from people who had deals turned down and now have questions. This post will help you better understand how DHM funds fix and flip deals and how best to take advantage of the various real estate investing loans we provide.
Having a better understanding of how Do Hard Money loans work and the process of approval can prevent many of the hiccups potential borrowers experience when applying for our hard money loans. It will also give you perspective on the few complaints you read online. Flipping a house is not easy, (you can read more here) and often people jump into it without realistic expectations or an understanding of investing, business or risk.
When Do Hard Money Turns Down Deals
Do Hard Money Loans With Different Programs and Criteria
Do Hard Money offers a variety of funding options, so you need to make sure that the potential deal you are trying to get funded meets the criteria of the program you are wanting to use.
We have many loan programs available to experienced investors with good credit and funds for a downpayment. The best path to take for these loans is to submit a complete loan application and then speak with one of our team members to discuss the specifics of that deal. We can only accept loan applications for properties that are under contract, or in the case of refinancing, one that you own. We do not provide funding for properties that are occupied while renovations are being completed.
If you want to take advantage of our other loan options the process will entail more. We gladly provide funding for new investors, those with bad credit and low/no cash to close funding. Yes, even 100% financing when the deal qualifies! These loans are only available to those who have membership in our Find-Fund- Flip System. We will discuss that in more detail below.
Find The Right Loan
In order to obtain Do Hard Money loans for real estate investing you will need to determine what type of loan you need.
Do you need to refinance an investment property, either as a cash out refinance or to get funds for renovation of that investment property? You need to complete a loan application and then arrange to speak with a team member regarding your loan. You will need 10-20% downpayment and good credit. Monthly payments will be required.
Are you wanting a rental property loan for a buy and hold property? The process and requirements are the same for the refinance loans. We also require that you already own at least one rental property.
Do you have bad credit? Have you never flipped a house before? Do you want funding with no downpayment? Do you want a loan where you will not need to make monthly payments while you are completing a rehab? Do you want financing that allows you to use as little of your own cash as possible? – You are in luck! We can fund fix and flip deals for you. But you will need to enroll in our Find Fund Flip System so that we can provide you with the software and education resources, as well as the extensive amount of customer support these loans require.
Because enrollment is required, the process for obtaining that type of loan is different than for our other loans. You will need to speak a member of our team to see if you qualify to join. The criteria for enrollment is simple.You need to be motivated to succeed in real estate investing and have a reasonable understanding of the amount of effort and risk involved. Because the types of deals we can fund with these loans are not available in every market you will need to be willing to invest in oneof those markets, and not expect loans on properties in rural areas or on properties that will not have a large buyer pool. Examples of those would be large luxury homes or homes in areas where there are extensive rental properties that might only appeal to real estate investors and not families looking to purchase a home. You will also need to have some money set aside or access to some capital for your real estate investing business. This is not just to have money to enroll in the system. You will have expenses related to your business not covered by your loan. Some really profitable deals will still require some cash to close. We do not want you to enroll if it takes all of your money just to do so. While we encourage new investors to be creative with financing and to utilize other people’s money when they can, starting to flip houses when you are flat broke is tough. Not impossible, but tough. Because we work primarily with those new to real estate investing in this particular program we can see the extra obstacles in place for those in this situation. Don’t worry, real estate investing is possible for you, in fact, wholesaling properties is a great way for you to get started.
Common Mistakes That Derail Funding
Submit Accurate Information
We get many hard money loan applications that contain incomplete and inaccurate information. Because our direct loans for house flipping are asset based rather than credit based, we need complete information about the property. This is not like a more traditional loan where you submit an application, we pull credit and verify income, and then either approve or deny your application.
We are going to need some specific information like the property address and whether or not you have the property under contract. We are going to want a fairly accurate estimate of the After Repair Value (ARV) of the property and also a good estimate of repair costs in order to get the property ready for sale. This will allow us to determine whether or not the deal is worth pursuing. If those initial numbers look good we can discuss it with you to see if you want to proceed. We strongly discourage borrowers from proceeding forward with deals that do not appear qualified and profitable.
At this point DHM has not approved any loan, we have just crunched the numbers given to us by the applicant. If you determine that you want to proceed after reviewing the deal with a us the next steps are confirming the information you have submitted and a thorough evaluation of not just the property but of the entire deal. We do not proceed with the evaluation process without explicit approval from a borrower because they incur a hard cost.
Do Hard Money will review and verify the following information:
- We will send out 2-3 experienced real estate professionals that work and live in the immediate area of the property in question. These evaluators will be independant parties. They have no financial stake in whether or not the deal gets funded, so their impartial review is valuable to all parties involved. This is particularly crucial for new investors, who might have dollar signs in their eyes from initial profitability calculations. The process will entail not only pulling comps and walking the property. We use evaluators who assess risk for the deal utilizing our very specific criteria. If they don’t have confidence that a property can be rehabbed and sold within the loan term they let us know.
- The rehab plan and contractor bid are also carefully reviewed not only by our internal compliance team, but also by an experienced construction property manager. Does the rehab make the property competative with others in the immediate market? Is there a plan for quality materials and workmanship? What extra inspections may be required?
- There will also be where will begin verifying the information the applicant has given us about their credit situation and any additional qualifications the particular loan will require.
Unfortunately there are a few potential borrowers who will try to manipulate the calculator into giving them a “100% Financing Qualified” result without realizing that we are going to verify the input. Sure a bad deal can become a good one on paper when you just change the numbers, but that is most assuredly not the path to a successful real estate investing career.
Many people get hung up here because the inexperience they have in planning a rehab, assessing ARV and negotiating with sellers will result in deals that don’t qualify. This is one of the main reasons we require enrollment in our Find-Fund-Flip system for new investors. All of the tools and information needed to refine these aspects are available within the program, so learning from each unqualified deal is easier and growth as a real estate investor is faster.
Make Certain Your Contract Makes DHM Funding Possible
It is important that you understand how to properly word your contract when you make an offer on a property so that it facilitates our direct funding loan options. Experienced investors most likely know how to properly word contracts to protect themselves and make funding possible.
New investors using our materials via the FFF system have access to properly worded contracts as well as tutorials for filling them out. There are also team members available to answer questions and double check that there is not something in the contract that could derail the deal.
A common mistake we see being made is taking the advice of other investors or resources online on how to word your contract rather than workign with the DHM team as part of your membership. While these online resources are great when you are wanting to obtain a tradtional hard money loan with a downpayment and experience they often do not know how to word things for our direct funding. If you want to obtain one of these loans make sure you use the resources you purchased.
Don’t Let Other Members of Your Team Slow Things Down
There are times that those working as part of the borrowers house flipping team, such as contractors or agents, can hold up funding. We need things to happen in a timely fashion in order to make funding decisions within the tight time frames that investing situations present. Make sure agents and sellers know that they need to make the poperty available for the evaluations and to keep appoitnments. Contractors that will be reviewing bids with project managers and compliance need to be ready to speak with our team. Business partners who need to sign documents and submit required paperwork can cause delays when they don’t do their part quickly.
Common Misunderstandings With DHM Funding
What 100% Financing Means
You need to get clear on what 100% financing means and set realistic expectations. Sometimes we get people claiming that we’ve turned down their deal when in fact we have extended an offer of funding to them but they did not like the terms because there was cash to close or other terms they did not want to accept. So let’s talk about how DHM defines 100% financing and how you can take advantage of that kind of funding.
Do Hard Money’s 100% financing means that we will fund 100% of the property purchase, 100% of the rehab costs and 100% of the loan costs as long as the total of those things is less than the established ARV (according to independent real estate evaluations). Other lenders may define it differently, like they will fund 100% of the property purchase but not the rehab or loan costs. Some will fund 100% of the rehab but you still need a downpayment for the property purchase. It is imp-ortant that when you are comparing loan programs that you take a look at what the entire deal will cost you and how much of your own out of pocket cash is required, rather than just comparing rates.
Not every loan that we extend is a 100% financing deal, nor do we ever advertise that it is. Nor do we advertise that those who enroll in our FFF system to have access to that 100% funding are guaranteed to get it on any deal they submit.
100% financing also does not mean that we are just going to cut you a check for the full amount and you can then go deposit it. We require our borrowers to treat this as a business, because that is what it is.
Don’t Cut Corners
We see potential borrowers run into complications when they try to cut corners or skip important steps. As metioned before we will require you to keep the whole project on budget and schedule. We will only release funds through our draw process to licensed contractors after a complete invoice has been submitted and the work inspected.
If a deal requires you to use lower quality materials, pay the “friend discount” or cut corners then it is not a good deal.
Finding the Right Comps
The criteria our deal evaluators use is always subject to their own experience with the particular market in which the deal is located, and this is a good thing. Here’s why.
When a deal is evaluated by a third party that doesn’t have an interest in whether or not the deal gets funded that evaluation tends to be much more objective. An agent wanting to work with you to buy the property wants it to get funded so they can get the commission. A contractor who will get the work has will also have an interest in getting the deal financed. While these members of your team are extremely valuable they may not be completely without bias.
Also crucial is first hand knowledge of the specific market. So many areas have homes within a mile of each other that have vastly different property values. Those working in the area are aware of those. They can also have perspective on market trends in that area. Knowledge of whether or not home sales have slowed down or planned construction in an area can help determine how long a house will be on the market.
And finally, yes we do use the lowest comps. You will always want to make sure that you do this as investor as well. If a deal is profitable in that scenario, it will just be even more so if you sell the property for more. Banking on that higher figure that you saw somewhere is not a sound investing strategy.
Why Enroll in Find-Fund-Flip?
Is enrollment in the Find-Fund-Flip program the right decision for you? An honest assessment of your situation and goals is needed to answer that. Here are the questions you will need to answer in that self assement.
- Do you want one of the loan options that we only offer to FFF members?
- Are you willing to invest in one of the markets where Do Hard Money loans with direct funding options?
- Have you ever flipped a house before?
- Do you have bad credit and other funding sources just are not open to you?
- Do you want answers about your real estate investing questions to come from someone who will actually back their advice up with funding for your deals, or do you just want “free” advice you can find online as your only source?
These questions are equally important, because if the answer to them is negative you may find that enrollment is not right for you.
- Do you want to be a real estate investor or are you just looking for quick cash?
- Do you believe you already know how to invest in real estate and you only need funding?
- Are you just wanting a turn-key type of investment?
- Are you willing to take responsibility for your own success?
- Are you willing to invest time, money and energy into your goals?
- Do you need a guarantee that you will always make money, that it will all be easy and without set backs?
- Is your reaction to a set back to look for blame, or is it to solve the problem?
The great news is the enrollment will pay for itself time and again if you learn from the program. It is based on solid strategies, things that will teach you how ot recognize and complete a profitable deal regardless of the lender that you use. And last year, those implementing these strategies to complete a fix and flip with use averaged over $33,000 in profit! (you can read m ore about that here.)
Falling in Love With a Bad Deal
This is one of the biggest causes of misunderstanding and frustration that we see for new real estate investors. They work really hard to find a deal, and intial assessments look promising. Running those initial numbersresults in a nice profit. A crucial part of investing is learning to objectively look at the data and walk away when it becomes apparent that the risks are too high.
Gathering the dats through things like property evaluations, inspections and similar steps is where you gather that data. And as a new investor you will need more help with this than you will later in your career.
Also, as you gain more experience and have more money to invest you may determine that you are willing to take on those higher risks and will want to look for funding that accomodates that.
Filling Your Pipeline
Real estate investing is a numbers game. You never want to “put all your eggs in one basket” so to speak. You need to review hundreds of properties to find those worth having a conversation with the seller. From there you will weed out those that won’t wortk and will make offers on the remaining homes. After that you will evaluate each and begin your due diligence. You want to keep looking for the reasons to abandon a deal, not just for reasons to pursue it.
You want to keep this funnel full all the time as an investor, this is where you will find success.
Keep Your Contacts and Resources
People are a vital component of your success, so building up a good network of buyers, funding sources, contractors, agents and more is necessary.
Keep relationships fresh.
Help people out when you can even if there is nothing in it for you.
Pay people on time.
Leave great references for those you have worked with.
Your list of contacts is worth more than virtually anything else you will acquire as you work to become a successful real estate entreprenuer.
Learning From Rejected Deals
Learn to view rejected deals as learning opportunities, because that is in fact what they are. If you make an effort to review the entire process each time a potential deal falls through yopu will accelerate your learning. Sometimes the flops help you learn more than the successful flips.