4 Commercial Hard Money Loans Requirements You Should Know

Commercial hard money loans are mortgages that are often used in both commercial and residential financing. The lender supplies the funds but has some requirements. These mortgages are meant for borrowers that have enough cash but may have a poor credit score.

last updated Wednesday, May 17, 2023
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John Burson

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Commercial hard money lenders aren’t strict on the credit score because the commercial hard money loans borrower provides collateral. In most cases, collateral is often the property being purchased. Commercial hard money loans have high-interest rates, but borrowers consider this an excellent option to get project funds.

First Lien

Commercial hard money loans are only meant for use in the first situation. In other words, you can’t use a commercial hard money loan as the second loan due to the absence of equity. Therefore, they will recover any proceeds when you default on paying the loan.

Equity

Almost all commercial hard money loan lenders won’t agree to lend you any amounts above 60% to 70% of the property value. Therefore, for commercial hard money loan lenders to agree to finance you, you should invest in a property with direct equity, for instance, properties owned by a bank where you will be required to have money to put down. When closing, you usually need 30% to 40% of the mortgage in cash. This means that you can only qualify for commercial hard money loans if you have some money.

Mortgage to value

This term defines the amount of commercial hard money loans to the worth of the property. For instance, if you want to buy a property worth $100,000 and need a commercial hard money loan of $70,000, the mortgage will be 70%. The value of commercial hard money loans is often 60% to 70%.

Cross-Collateral

When you want to purchase a property and don’t have the money to put down a commercial hard money loan, lenders can decide to cross lien. In such a situation, they will put a lien on any other property you own and have some equity.

Benefits

Commercial hard money loans can be a good alternative when you have low credit, are self-employed, and don’t want your income documented. If you own other properties, you can use these loans for a flip, rehab, and a new building.

 
 
 

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