As asset-based lenders, the most important part of the loan application is the property. This differs from traditional (federally insured) lenders where the most crucial component is the borrower. For hard money lenders/non-traditional lenders, the property’s value is of the highest priority. How this is generally determined is through comparable properties.
What should you use as a comparable? Comparison properties should be at the level of improvement you plan to put into the home.
- If you are adding square footage, use homes with similar square footage as the additions.
- Don’t use comparable properties that are so far above the quality that your fix up will be. Someone may have paid for those upgraded finishes, but that won’t translate to your project.
- Location / location / location – neighborhoods are important. The home values on the south side of a particular street could vary drastically from the values of homes on the north side of that street. Please pay close attention to the comparable properties you provide to your lender. As much as possible, try not to cross major streets and never highways. Below are 2 examples of comparable properties that have been provided – the location of your comps are important. Sell yourself!
If the comparable properties are more difficult to find, a lender may request to have an appraiser perform an after-repair value appraisal. Not all appraisers offer this service.
- The more comparable properties you are able to provide, the stronger your deal looks.
- Lenders consider true comparables only to be ‘sold’ properties. Feel free to include ‘under contract’ and ‘active’ but these deals aren’t closed so they don’t carry as much weight.