I get a chance to deal with quite a few different hard money lenders and private money investors and when asked what are their top reasons for denying hard money loans they each had the same reasons. Listed below are the top reasons for declining a real estate investing loan or rehab loans:
Top Reasons Hard Money Lenders Deny Investors
Cash Reserves: Rehab loans are with a borrower who seems to be under capitalized/low on funds/no access to credit may also receive a decline. Hard Money Lenders want to make sure an investor can afford to carry the loan and complete the repairs at the same time. Especially on a rehab loan, a lender wants to make sure a borrower has a back up plan or cash reserves if there are cost or time over runs. Investors without some skin in the game or a rehab plan that leaves no room for error – may be surprised to get a decline on their hard money real estate investment loan
Location: Investment property that is located in a rural location or an area where there are no sold comparables within 3 miles of the subject property – makes Hard Money & Private Loan Lenders nervous. Hard money lenders prefer to lend in major metropolitan areas where sold comparables are 1/4 mile to 1/2 mile away. Although a real estate deal in a rural area may look good on paper, if there aren’t sold comps nearby to support value, a hard money lender may turn it down. Also, with a smaller market, you have a smaller pool of buyers which can effect your repayment schedule or extended sales times.
NOTE: Hard money loans are seldom issued to properties in high crime areas or neighborhoods that are on a whole distressed.
Investors Comment Below: Ever been denied a hard money loan on a good investment property deal?
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