How do hard money lenders evaluate a property?

There is no set of criteria that is standard or unique to the hard money lending universe. Most of them will certainly underwrite their loans with significant desires for quality of the real estate asset. Most are solely collateral-based meaning real estate value is the most crucial criteria which a lender is taking into consideration when deciding to finance a property. Just how do hard money lenders evaluate a property in today’s marketplace?

Below points will really helpful to evaluate the things:

1-Appraisal:

Appraisals would be the most recognized way to obtain property valuation, and for California hard money lenders, appraisals simply are opinions of value from licensed individuals. Appraisals are the longest-standing and most recognized source of property valuation, so it would surprise most borrowers and mortgage brokers to know that an appraiser's opinion can be taken with a grain of salt nowadays.

Many investors are accustomed to using an appraiser as the sole determiner of value of a loan. In most bank transactions, that is the case because the banker or loan officer lacks the time and expertise to evaluate all forms of collateral.

2-Tax Evaluation:

Sometimes capital providers use assessment and tax valuation as a benchmark for valuating property. It would surprise most borrowers and mortgage brokers to know that an appraiser's opinion can be taken with a grain of salt nowadays. 

3-Broker Price Option:

The estimated value of a property as determined by a real estate broker or other qualified individual or firm. A broker price opinion is based on the characteristics of the property being considered. BPOs are popularly used in situations where lenders and mortgage companies believe the expense and delay of an appraisal to determine the value of properties is unnecessary. A financial institution will order a BPO from a Real Estate Broker in which the broker will do a drive by BPO or an Internal BPO. The Broker Price Opinion is the less expensive approach to determine of the property value and basically lenders ask a local expert’s advice.

4-Income Approach Method:

The true hard money lenders are considering the probability of the potential borrower to repay their loan first. If the property is income producing property, is it enough to pay the monthly payments and is the borrower able to refinance and pay the loan off? And they want to know if they want to own the property if they foreclose on the borrower. 

While there’s simple valuation method, it is important to know that not all properties are valued the same and lenders consider valuating each asset class differently. For example, apartment buildings are more favorable than single tenant retail center. And for most hard money lenders, each asset class has a specific leverage ratio.

For more information visit our California Hard Money Lender

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