– Simply, hard money loans is a short-term loan secured by real estate. They are usually funded by private investors as opposed to conventional lenders such as banks. The loan term is usually twelve months, but in some cases, it can be extended to longer terms of 2 to 5 years. Like any loan, it requires monthly payments. Since it is secured by real estate, the amount of money given by lenders to the borrower is based on the value of the property. The property may be one that the person borrowing the money already owns and wishes to use or it may be a property that the borrower wishes to buy.
– In hard money loans, lenders are usually not concerned about borrower’s credit, but rather with the property value.
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~ Property types for hard money loans ~
– A hard money loan can be acquired on almost any type of property, these include single-family and multi-family residential, commercial, industrial or land properties.
– Hard money lenders probably specialize in one or more properties type, so if the lenders don’t have experience in industrial property, they will probably not be able to lend the money to the borrower. In this case, it is best to ask the lender what type of loan they are willing to give.
~ What types of deals should hard money loans be used for ~
– Not every loan is appropriate for all deals. When buying a residence with good credit and income history, with no issues with the short sale or foreclosure, a bank or credit union might be the best way for the borrower if they have time to wait for the approval that is required by the bank. When banks are not the option, hard money loans are the best source of financing. Hard money loans are perfect for situations such as:
- Fix and flips
- Land loans
- Construction loans
- When the buyer has credit issues
- When a real estate investor needs to act quickly
~ Interest rates for hard money loans ~
– The interest rates that are charged will be different from company to company, as well as depending on the region. Keep in mind that hard money lenders take on a lot more risk with their loans compared to usual, bank loans. Because of the higher risk, the interest rates will be higher. Interest rates for hard money loans are from 10-15% depending on the specific lender and the risk that the loan brings.
~ Borrower requirements for a hard money loan ~
– As said before, lenders are not worried about the borrower’s credit, but they are primarily concerned with the amount of money invested in the property that will be used as collateral damage in the loan.
– The lender needs to think about the borrower’s plan for the specific property, hence the person borrowing the money needs to present a reasonable and well-constructed plan that will show how they intend to pay off the loan.
~ How to find a hard money lender to make a deal with ~
– There is a wide variety of ways that you can find a hard money lender that has a good reputation.
– One of the easiest ways to find a local lender is to type in your location and add „hard money lenders“. You will get results for individual companies as well as a list of hard money lenders made by others. This will provide a good start in searching for the right lender for you.
– Another way to find a lender is by attending your local real estate investor club meeting. These meetings exist in most cities and are usually packed by hard money lenders.
– Once you compile a list of hard money lenders, it is time to start contacting them in order to find the most suitable lender for you.
~ Conclusion ~
– Taking out loans is never easy and there are a lot of things to worry and take care about. But with careful planning, finding the right hard money lender, and making sure you plan works, there should not be a thing to worry about.