Hard money loans are an alternative to conventional mortgages for people who wish to invest in real estate and are unable to find the right options through traditional lenders such as banks. Hard money loans generally carry short terms, higher interest rates, and are often approved based chiefly on the property value.
Hard money lenders usually rely on privately held funds to help buyers invest in real estate. A hard money lender may be an individual or a group of people. As such, the loan terms and conditions can vary depending on the lender.
There are plenty of hard money lenders you can find online. However, many lenders specialize in a particular state, so if you are looking to purchase property in California, you would want to find a hard money lender in this state. The second factor to consider is the type of property you want to purchase. If you are looking for rehabbing loans or fix and flip loans, then Universal Commercial Capital provides quick, hassle free loan processing.
For people who want to purchase a property for investment, hard money lending may be a better option than traditional mortgage. Hard money loans are typically approved within 10 days, ensuring that the buyer does not miss out on a chance to obtain investment-worthy real estate. The loan term is short, and this provides more reason for investors to choose this type of loan, particularly if they are looking to fix and flip properties. Lenders base the transaction on the estimated property value after purchase and renovation, which ensures that even borrowers with low credit scores can have a relevant real estate investment loan approved easily. The interest rates are high, to offset any risk to the lender. However, with the short loan terms, savvy property investors can easily make a profit on the property.
The property value as determined by the lender is the most important factor. If the lender feels that the property can fetch good returns on investment, they will approve your loan application. Other factors to consider would be the down payment, which could range from 25% to 40% of the loan amount. The more you can offer as down payment, the easier the approval process, as greater amount of down payment mitigates the risk to the lender. The lender would also want an assurance on monthly payments.
The process starts with filling out of the loan application form (you can apply for a loan here), where the borrower offers property details, income details, and other information to the lender. Depending on this information, your loan application could be approved within a few days.
When applying for a hard money loan, you need to be aware of lender fees on the loan. The closing cost would be calculated as a percentage of the loan amount. If a broker helped you find the lender, then a broker’s fee may also be part of the overall fee charged by the lender. Based on the nature of the transaction, other fees may be charged.
Since many lenders offer loans without checking the credit scores of the borrowers, a higher interest rate helps shield the lenders against risks in the event the borrower is unable to repay their debt. Second, since many of these loans carry short terms, such as a few months, the higher interest rates make the transaction feasible for lenders. For borrowers who have invested in the right property, the higher interest rate is usually not a concern, since they can repay the loans within a short time frame and still make a profit on their investment.
Yes. One of the major reasons that borrowers turn to hard money lenders is that their credit score does not enable them to get loans from banks and other traditional lenders. As long as the lender is satisfied that the property will return a profit, they will approve your loan application. That said, you can improve your chances of loan approval by ensuring your can make a down payment, make monthly payments on time, and have experience in flipping properties.
As long as the property is not owner-occupied, you can find the right loan for it. Once you purchase a rental property, you may choose to sell it or you can continue renting it out. The rent covers your monthly loan repayments.
States have varied requirements regarding hard money lender licenses. Usually, the lender is required to be a licensed property broker. There are laws regarding what type of property you may borrow money against. You may also ask the lender for references to ensure that you are working with a reliable lender. Checking professional associations and industry groups (such as the National Association of Mortgage Brokers) for membership will also be useful.
As with any type of loan, you need to consider possible risks when applying for a hard money loan. You may want to carefully assess if you can repay the loan on time, are able to make timely monthly repayments, are comfortable with the fees and interest rates. You would also need to review the time needed for property renovations – if the renovations take more time than anticipated, your ability to repay the loan may suffer. If you would like to take added precautions, you can have a capable lawyer look at your loan documents before you sign up for a loan. Some lenders may also charge a fee for early repayment of the loan.
A second mortgage is usually taken out to tide over a fund crisis – hospitalization, personal debts, and so on. It can also be used for business investments, such as real estate purchase. Many hard money lenders do offer such loans as a second mortgage, particularly if you have a low credit score, need to borrow quickly, and have identified a profitable investment.
One of the major reasons that property investors take out this type of loan is that hard money lenders are less finicky about the borrower’s credit score. As long as you have a profitable property to invest in, the lender will usually offer you a loan within a span of a few days. This also does away with the need for a collateral. If a property is on the market for a short time, then you might want to rely on a hard money lender, where the approval time is much less than that of a bank. Hard money loans are short term; therefore, you are not burdened with debt for years to come. Then there are properties that a bank may not want to invest in, particularly those in need of renovation; a hard money loan becomes a good option. Since hard money loans are privately secured, they do not affect the borrower’s credit score. Additionally, these loans carry flexibility, in that the lender can relax the terms for a good prospect.
Hard money loans are typically repaid within one to three years. Rarely does the loan term exceed five years. As such, these loans are ideal for property investors who purchase property, add value through renovations, and then sell it.
Typically, the down payment might range from 30-40 percent of the loan amount. The down payment mitigates the risk to the lender, who in turn is able to furnish a loan without examining credit scores.
The borrower is typically expected to pay interest on a monthly basis. When applying for a loan, you would also need to consider your ability to pay the interest in addition to the monthly loan payment. Late payments can attract fees.
Hard money loans are approved with little to no emphasis on the borrower’s credit history. They are approved very fast – some lenders approve loans in less than 10 days. Hard money lenders also charge higher interest rates. The loan repayment time varies from a few months to three years. Hard money loans are typically offered on investment properties, and not on residential properties in use by the owner. Another factor that favors the borrower who approaches a hard money lender is their experience in the real estate investment market. A seasoned investor means less risk to the lender.