It used to be that hard money did not take into account a borrowers debt to income ratio. With the recent changes to lending regulations, however, even hard money loans require a debt to income ratio, or DTI, calculation to be made to ensure a borrower has the ability to repay a loan.
This is true for consumer lending on residential 1-4 unit properties. In a nutshell, if you are going to live in the home or use the proceeds from the loan for consumer purposes, you must document your income and ensure you have the ability to repay the loan. Even for hard money loans.
While a debt to income ratio must be calculated, there is not a hard and fast cap on what it must be when dealing with hard money. Generally speaking, though, you will need a debt to income ratio of less than 50%. This means a maximum of 50% of your gross monthly income is being spent on housing expenses and other monthly debt obligations.
While hard money is an alternative lending source for borrowers who cannot obtain conventional financing, it is not a “non-qualifying” money source these days, especially for consumer loans. Just because a property has equity does not mean a hard money loan can be made for a borrower. While debt to income ratios may not be in play for loans made for business or investment purposes, for any consumer loan you will be required to fully document your income and satisfy a debt to income requirement.
If you are able to document your income and satisfy a debt to income ratio requirement, hard money can provide an option that will allow the purchase of a home regardless of credit history. This includes recent short sales and foreclosures, two events that often preclude a borrower from obtaining conventional financing for years following the incident.
Feel free to contact me for more information on hard money loans or to discuss any questions you may have regarding your eligibility.
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