How to Qualify for a Hard Money Loan with Longleaf Lending

How to Qualify for a Hard Money Loan with Longleaf Lending

November 02, 2023

Planning to pursue a real estate investment project but in need of funding? A hard money loan might be just what you need to close the deal fast. At Longleaf Lending, we offer hard money loans for fix and flip, rental, and ground-up new construction.

But first– what is a hard money loan?  Hard money loans (or private money loans) are short-term loans made to real estate investors to help them quickly acquire their next project, scale their business, and maximize returns. Private lenders like Longleaf who make these loans are asset-based which means the focus is on the property’s value and cash-flow potential.

 

How to Apply for a Hard Money Loan

It is fairly easy for a real estate investor to apply for a hard money loan with Longleaf as our approval process is streamlined and efficient. We offer an online request form that has a turnaround of 24 hours and we can close in as fast as 48 hours.

Here are the steps for applying for a hard money loan: 

  1. Fill out the online form. The form will gather preliminary information about the loan applicant such as: contact information, real estate portfolio, years of real estate experience, credit score, and income profile. If you already have a target address of the investment property, you may also add the information, together with the estimated loan amount and estimated closing date.
  2. Provide the documents. After submission of your request form, a loan officer will guide you on the collection of the required borrower documentation to complete the application process. These will include identification, entity documents, and real estate schedule.
  3. Proof of Funds. If you have provided the requirements and you were able to meet the criteria for the loan, we can provide a Proof of Funds letter before you have a property under contract. Getting pre-screened will give you the advantage over other competition as it will allow you to move faster in your offer. You can use our Proof of Funds letter to strengthen your offer as it will reassure the seller that your deal won’t fall through because of a lack of funding. 
  4. Use our Borrower Portal. When you are ready to proceed with the loan, you can make use of the Longleaf Borrower Portal to optimize the loan request submission.  Prepare to provide additional information such as ARV, purchase price, rehab budget (if any), loan term, purchase agreement, assignment agreement (if applicable), appraisal, insurance data, and so on. Keep in mind that these documents may not yet be available at the time you submit the application, so it is important to maintain an open communication with your loan officer so you can be properly guided through the process and you can also ask for feedback regarding the property. 
  5. Close the deal. Once you are under contract, we will coordinate with the title company to close the deal as soon as possible. At Longleaf Lending, we can close faster than other lenders because we do not broker your deal—we service your loan in-house. 

What does a hard money lender look for in a deal?

Though a hard money loan is asset-based, meaning your property is the collateral, hard money lenders bank on the success of the borrower as it is easier to earn interest on a successful property than face the hassles of a foreclosure and selling a failed project.

With this in mind, it is important to understand that hard money lenders, first and foremost, focus on the value of the property to determine the risk. Here are some criteria used to manage the risk of a property deal.

  • LTV: Loan-to-Value (LTV) is the loan amount divided by the after-repair value (ARV) of the property. The higher the LTV, the riskier the loan.
  • LTC: Loan-to-Cost compares the loan amount to the cost of construction.
  • DSCR: Debt-service coverage ratio is the property’s potential cash flow divided by its expenses. A DSCR greater than one means the property generates enough cash flow to cover the loan’s interest payments, taxes, and insurance. And the higher the DSCR, the less risky the loan.

See more information in our article How Hard Money Loans Work.

What is the difference between LTV and LTC?

LTV and LTC may pose some confusion for some real estate investors. Both ratios are important considerations as they can impact the amount of financing required and the potential return on investment.

LTC is a measure of the amount of financing needed for a rehab project, expressed as a percentage of the total cost of the project. For example, if a fix and flip project has a total cost of $200,000, and the investor is seeking a loan for $120,000, the LTC ratio would be 60%. A higher LTC ratio may indicate a higher level of risk for the lender, as the borrower is putting less of their own money into the project.

LTV, on the other hand, is a measure of the expected value of the property after the fix and flip project is complete, compared to the amount of financing being sought. For example, if an investor is seeking a loan of $120,000 for a fix and flip project, and the expected value of the property after the project is completed is $200,000, the LTV ratio would be 60%. A lower LTV ratio may indicate a lower level of risk for the lender, as the borrower has more equity in the property.

Both LTC and LTV ratios are important considerations for investors and lenders when evaluating the feasibility of a fix and flip project. A higher LTC ratio may indicate a higher level of risk for the lender, while a lower LTV ratio may indicate a lower level of risk. Ultimately, the right balance between LTC and LTV will depend on the specific circumstances of the project and the risk tolerance of the investor and lender.

For the loan requirements from Longleaf Lending, see our Loan Products page. 

Expert Advice

One of our in-house team members, John Harvey, loan officer and experienced real estate investor, has 3 pieces of advise for hard money loan applicants looking for funding of their real estate investment projects.

  1. Become familiar with each participant’s role. Who are the people that are going to be involved in your project? Build a relationship with them beforehand and understand each role. This will avoid overlaps in decision-making and planning and ensure everyone is on the same page when it comes to your plan.
  2. Make sure communication is up to par. Lack of communication is often a problem and a big reason why plans go awry. “Too often I see issues surface that could have easily been prevented with proper communication,” says John Harvey.
  3. Stick to the plan. John further advises applicants to know their metrics, to have an organized plan, and to stick to it.

Our website offers a lot of information for real estate investors and we offer free tools such as the Hard Money Loan Profit calculator. Feel free to take a look around our website to help you analyze trends, insights, and other useful information that may aid your planning and decision-making process.

For more information about Longleaf Lending, do not hesitate to reach out to us at info@longleaflending.com or call 979-200-2823.