Hard money lenders usually fund based on a loan-to-value ratio (LTV), which means they lend up to a particular proportion of the property’s current market worth, usually 65-75 percent. Some lenders may also lend based on the property’s after-repair value (ARV), which is the estimated value after improvements are completed. There are various methods for valuing real estate. A typical hard money lender will evaluate a rental property in the same way that an investor would. The lender will also want to know if there is enough money in the agreement for the investor to benefit and pay off the loan and costs.
Lenders will look at an investment renovation strategy when evaluating whether or not to finance your project. In addition, the hard money lenders will assess the property’s present specifications, such as lot size, home square footage, location, bedroom and bathroom count, and many more, throughout this process of stitching the dossier together.
A savvy lender’s analysis of comparable homes in the neighborhood will determine the most desirable and feasible standards for the refurbished subject property. Then, after deciding on a remodeling budget, the lender will determine how much the property will sell for after it has been remodeled. This is done so that you can participate in and see the sale in order to assess the profit margin.
Many lenders, like Intrust Funding, will not finance investment properties that they do not believe will be profitable. If an investor is turned down because of the property, they should either seek a second opinion or not buy the property at all. While getting a second opinion may seem desirable, lenders who advise against acquiring a home are acting in your best interests and are not interested in obtaining your collateral but rather in funding a successful sale.
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