Why You Get Declined

Background

Let's say your deal looks good, the numbers check out.. But you committed check  fraud or debit card fraud. Once that skeleton comes out of the closet investors will decline you right out the gate.

Anything that has to do with financial crimes will be treated with the highest scrutiny. You could honestly have murder in your background and still be able to get funding in the private money space. 

Another form of background would be your filed bankruptcy. This depends on the investor, but usually you need to wait at least 2-4 years before being able to qualify for a loan.

Cash Requirements

The minimum required down payment is 20%. I’d love to say you’d always get that 20% but that’s not the case.

For bridge loans you’ll be looking at around 35-45% LTV. Unless you are doing rehab - rehab bridges you’ll get 80% of the purchase price and 100% of the rehab.

Permanent financing typically requires 20-30% LTV, depending on your credit score and the amount of units in the property.

You also need to factor in closing costs and potential reserves, which could add an additional 10-15k to your costs. As well as rehab loans require work to be done with your money first before being able to disburse from it.

When applying for a private/hard money loan, keep these things in mind or else you’ll get automatically declined.

Equity

You have Equity in your property as soon as you purchase it, due to the down payment. That doesn’t mean the equity is “Lendable Equity.”

Depending on the product, bridge or permanent, you’ll want to have at least 55-60% Equity into the property. This means your balance is around 40-45% left until it’s paid off. 

With a bridge, in order to get Cash Out, they will usually provide an LTV of 55%. If it’s only to get out of a maturing bridge you're in already and your Equity is still low, typically you’ll look at 65% LTV.

Permanent financing is a bit better with their Loan to Values. They can lend you Cash Out or Rate and Term loans anywhere between 65-80% LTV.

With the way rates are shooting up right now we recommend you jump on a refinance now! We can help you, Apply Here.

There are other Hard Money Lenders that only pay attention to how much money you put into the property, using a valuation of Loan to Cost.

If you purchase a property for $75k, put $25k rehab into it and the ARV (After Repair Value) is now $175k, they aren’t going to look at 175k but only the 100k that you put into it. In those instances you’d want to make sure your Lendable Equity is high enough to support these valuations.

Primary Home

Plain and simple, Private/Hard Money lending doesn’t work with Primary homes. Only Investment and Commercial properties allowed.

We cover this in our article Private/Hard Money vs Traditional. 

If you’re looking for primary home funding you’ll want to look for a local lender or broker to help you. We can point you in the right direction, contact us.

Population

Certain investors will only work with cities that have at least a population of 20k. If a lot less, MAYBE they will consider it if it’s near a MSA (Metropolitan Statistical Area).

For example, if my town only had 2000 people, but I lived 10 miles from Atlanta, GA, I may still have a chance.

In a later article I will cover some reasons why population is so important and link to it here.

Property Type

All investors have their main properties that they like to work with. If it’s an investor that works with residential properties, they most likely won’t give a glance to your office building.

However, there are a variety of different investors that do specialize in offices, you’ll just want to do some searching. 

We can point you in the right direction if you’re currently looking for funding. Fill out our quick application and we will get back to you.

Loan Amount

Minimum loan amounts differ by loan products. For instance, with bridge loans you’ll most likely need a loan amount of at least $50k. That’s with rehabs as well, and you must factor in the down payment into your calculation.

With permanent financing, you’ll need at least $75k loan amount.

Let’s say you’re purchasing a property for $100k and, hypothetically, the down payment is 20%. That means your loan amount would be $70k. Therefore, permanent financing is out but you can go with a bridge.

The math gets a little different when calculating rehab loan amounts.

We’ll say this time your purchase price is $50k, but the rehab is $35k. You’d calculate 80% of the purchase price which equals $40k and 100% of the rehab is still $35k. Therefore, when added together your loan amount is $75k.

In Conclusion

These are the main reasons you can get declined for funding, but every investor has their quirks.

We can help you find funding but we also have our own guidelines as to what we will work with that will take effect in the future.