Hard money lending offers great opportunities for lenders working with real estate investors who need cash fast. These short-term loans backed by property can generate higher returns than traditional lending, but they come with their own challenges.
The Nortridge Loan System helps hard money lenders manage these complexities efficiently. Here are the eight key hard money loan requirements that make hard money lending different from regular loans.
1. Property as Collateral
In hard money lending, the property itself is your security, not the borrower’s credit score or income. This means you need to keep detailed records of every property in your portfolio.
You’ll want to track things like current property values, insurance policies, tax information, and any liens. Nortridge makes this easy by storing all property details in one place, so you can quickly see the full picture of each deal.
What this means for you: Keep good property records to protect your investment. Know what you’re lending against.
2. Loan-to-Value (LTV) Ratio
Most hard money lenders stick to 60-75% LTV ratios to protect themselves [1]. This means if a property is worth $100,000, you’d lend no more than $60,000-$75,000 against it.
Nortridge helps you calculate and track these ratios across your entire portfolio. You can generate reports to see how your whole portfolio is performing and identify any loans that need attention.
What this means for you: Lower LTV ratios mean less risk. Track these numbers to stay safe.
3. Down Payment or Existing Equity
Borrowers usually need to put down 20-30% of their own money [2]. This gives them “skin in the game” and reduces your risk if things go wrong.
Throughout the loan, you’ll want to keep an eye on how much equity the borrower still has in the property. If property values drop or the project costs more than expected, that equity cushion protects you.
What this means for you: Borrowers with more invested are less likely to walk away. Monitor equity levels regularly.
4. Exit Strategy
Every borrower needs a clear plan for paying you back – whether that’s selling the property, refinancing, or using rental income. Your job is to make sure this plan makes sense.
Nortridge lets you track project milestones and deadlines using custom fields and detailed notes. You can monitor important dates and keep tabs on whether borrowers are hitting their targets.
What this means for you: Know how borrowers plan to pay you back. Stay involved in their progress.
5. Borrower Experience
Experienced investors are usually safer bets than first-timers. They know what they’re doing and are more likely to complete projects on time and on budget.
With Nortridge, you can track each borrower’s history with you – their payment record, how many deals they’ve completed, and whether they stick to their timelines. This helps you decide who gets better terms.
What this means for you: Track borrower performance to identify your best customers. Good borrowers deserve better rates.
6. Property Type and Condition
Some properties are easier to sell than others if you have to foreclose. Single-family homes in good neighborhoods typically work better than unusual properties or those in rough areas.
For fix-and-flip projects, you’ll want to stay informed about renovation progress. Nortridge helps you keep notes and track important updates throughout construction.
What this means for you: Stick to properties you understand. Stay informed about renovation progress.
7. Credit Score (Sometimes Considered)
While credit scores aren’t the main focus in hard money lending, they still tell you something about a borrower’s financial habits. Some lenders use them to adjust interest rates.
Nortridge connects with all major credit bureaus so you can pull credit reports when needed. This information helps you get a complete picture of each borrower.
What this means for you: Credit scores aren’t everything, but they’re still useful information. Use them to fine-tune your rates.
8. Speed and Preparedness
Hard money borrowers often need funding in days, not weeks. Your ability to move quickly is a huge competitive advantage.
Nortridge streamlines the process of setting up new loans and getting borrowers access to their payment portal. Everything happens faster when your systems work smoothly.
What this means for you: Speed sells in hard money lending. Good systems help you move faster than the competition.
What Makes a Good Hard Money Loan
When evaluating potential loans, focus on these four key areas that represent essential hard money loan qualifications:
- Strong property – Good location, realistic value, easy to sell if needed
- Clear exit plan – Borrower knows exactly how they’ll pay you back
- Adequate equity – Borrower has enough invested to stay committed
- Borrower track record – Experience completing similar projects successfully
These hard money loan qualifications help you build a portfolio of performing loans. Good hard money lending is about managing these elements proactively, not just reacting when problems arise.
Managing Your Hard Money Portfolio
Running a hard money lending business involves several key activities that traditional lenders don’t worry about.
Staying on top of projects:
- Regular check-ins with borrowers about renovation progress
- Keeping notes on project milestones and any delays
- Having clear procedures for when loans need extensions
- Knowing local market conditions that affect property values
- Building relationships with contractors, appraisers, and real estate agents
Setting Up Your Operations
Successful hard money lenders need solid systems to handle the complexity.
Essential operational tools:
- Fast payment processing for multiple payment types
- Document storage that keeps everything organized
- Automated calculations for fees, interest, and extensions
- Strong security to protect sensitive financial information
- Easy connections to appraisers, title companies, and other service providers
How Nortridge Makes Hard Money Lending Easier
The Nortridge Loan System was built to handle the unique challenges of hard money lending and the complex hard money loan requirements that come with this type of lending. It brings together all the tools you need in one place. For lenders just getting started, our comprehensive guide on how to become a hard money lender covers everything you need to know.
What Nortridge handles for you:
- Flexible loan structures supporting any payment schedule or interest calculation
- Integrated collections tools with customizable workflows and queues
- Over 150 standard reports with configurable filtering for any analysis you need
Frequently Asked Questions
Common questions from hard money lenders about managing their lending operations and understanding hard money loan requirements effectively.
Is it possible to pull credit reports on every borrower?
Nortridge connects with all major credit bureaus when you need credit information. While credit isn’t the main factor in hard money loan qualifications, it helps you understand borrowers better and set appropriate rates.
How often should we check on our portfolio’s risk?
Nortridge provides real-time reporting. Most lenders review their portfolio monthly, but you can check anytime. Market conditions and your comfort level should guide the frequency.
What payment options work best for hard money loans?
Nortridge handles interest-only payments, balloon payments, and custom schedules. Most hard money lenders prefer interest-only monthly payments with a balloon at maturity, but flexibility is key.
What features does Nortridge offer specifically for hard money lenders?
Nortridge includes property tracking, flexible payment processing, collections management, comprehensive reporting, and tools designed to handle the unique hard money loan requirements that make this lending different from traditional loans.
References
- TaliMar Financial: Understanding Loan-to-Value (LTV) Ratios: Why It Matters in Hard Money Lending
- Clarity Capital: Hard Money Loans Explained: Pros, Cons, and How They Work