Monthly Archives: April 2020

7 Tips To Follow Before Funding A Hard Money Loan

 

Hard money loans have long been an alternative to traditional mortgages.  Many people turn to this type of financing when the mainstream options aren’t available. Investors who flip properties often take out these loans for a number of reasons. If you are looking into getting a hard money loan, there are a few things that you will need to consider before going forward. In the end you will be glad you decided to do this research.

Interest Rates

Every loan comes with interest, and the rates on hard money loans are typically higher than that of bank loans. You will be required to pay back the full amount you borrowed (the principal) as well as the interest that has accumulated on the loan since you took it out. The interest rate you end up paying on your loan will depend on the type of loan you get among other things. A majority of hard money loans have interest-only payments, which allows you to pay only the interest on the loan. The principal of the loan will be paid back as a balloon payment later on, which means all at once. Interest-only payments can make it easier to pay back your loan on time.

Value of the Home

The value of the home you want to buy will be an important factor in whether or not your loan application gets approved. The value of the property will not be determined by what you pay for it or the list price, but rather the current market value. The higher your house’s loan-to-value ratio is, the higher the risk is going to be. This is because most investors with high loan-to-value ratios don’t have as much invested in their property.  Use the Federal Government’s House Pricing Calculator to find out what your house may be worth. follow lending tips to get a hard money loan agreement

You’ll Make a Balloon Payment

The payments that you make on your loan each month will be only to cover the interest. You will eventually make a balloon payment to cover the principal of the loan. If you are able to sell the property in time, you should have no problem whatsoever with making this payment. It is important to have a realistic timeline when it comes to making repairs and selling the property though. The last thing you want to do is take out one of these loans if you cannot pay it back on time.

Your Credit Doesn’t Matter with a Private Money Loan

One of the great things about hard money loans is that your credit will not matter when it comes to getting approved. These lenders don’t even look at the credit scores of applicants, so it’s not something you’ll need to worry about. The property you wish to purchase will act as collateral in case you cannot pay the loan back in full, which is why your credit isn’t a factor.

Finding the Best Direct Lender

It is very important that you take the time to find the right private money lender for your hard money loan, as there are many of them out there. You will get one of these loans from a private lender as opposed to a bank or other traditional financial institution. The more time you spend looking into your lender options, the better off you will be. One of the biggest mistakes that a person can make when taking out an online hard money loan is to choose the wrong lender.  Spend some time and review the companies in our private money lender list.  This directory is updated weekly with changes to terms and payment restrictions.

Types of Hard Money Loans

There are numerous types of private money loans, and you will want to learn about each one in detail before going forward. There are fix and flip loans, cash out refinance loans, second trust deeds, build to flip, and rental finance. When you take the time to learn about these options, you can select the right one to match your needs. Each type of loan comes with different interest rates, requirements and payback periods.

Final Thoughts

There is no question that a direct hard money loan can be extremely useful to investors, but you should be prepared before filling out an application for one. These loans are available to experienced investors as well as those who are new to the flipping industry. When you spend enough time researching these loans, you should be able to make a decision that will benefit you tremendously.

What are the Different Types of Hard Money Loans?

We all know that hard money loans are short-term loans that use real estate as collateral.  Borrowers seek out this unique type of funding for the purpose of buying and fixing up a property. These days a lot of investors use these loans buy and renovate properties over the course of about a year. These are excellent borrowing options for those who are into flipping houses, and there are a number of them to choose from. If you are interested in a hard money loan, you will need to know what your choices are.

 

Fix and Flip Loans

You will find that fix and flip hard money loans can come with fairly high interest rates, but they are paid back over a fairly short period of time. There are no additional fees charged for paying back one of these loans early, and doing so can reduce the amount of interest you pay. These private lender loans usually have a term of 1 to 3 years, and it takes around 15 days to get the funds. home equity cash out Interest rates can vary from 7 to 12 percent, and lender fees go from 1.5 to 10 percent.

There are certain qualifications that you will need to meet before you can get a flip and fix hard money loan. You will need a credit score of at least 550, and a debt-to-income ratio of anywhere from 35 to 45 percent. It is also important that you’re able to demonstrate experience with rehab projects or licensed contractor help. Those who have at least a couple years of experience with rehab projects will benefit the most from this type of loan. Even people without this type of experience can still get a fix and flip loan though.

Many of the private lenders who give out real estate loans are based entirely online. You can fill out an application through the lender’s website and wait to hear back. If you are approved, you should receive your funds within a couple of weeks.

Cash Out Refinance

A cash out refinance hard money loan is when someone who fixes and flips real estate refinances a current property that is in play to buy a new property as an investment. This enables investors to get maximum equity from their current property by borrowing money so they can pay off the mortgage. When the new cash out loan is given to the investor, it is referred to as a “first lien.” Any current liens, including the first mortgage, have to be paid back in full before any equity can be extracted.

The investor uses the difference between the new loan and mortgage to pay for other properties that they can flip and fix up before selling. One of the best things about this loan is that there aren’t any limitations on how the borrower can spend the money they are given by the lender. Investors are able to use a cash out refinance or “cash out refi” both owner-occupied and non-owner occupied properties for up to four units.

Cash out refi loans have a term that can range from 15 to 30 years, and it typically takes anywhere from 30 to 45 days to get approval. The interest rates for these loans can go from 2.99 to 5 percent. The loan origination fees are 3%, and the closing costs fall between 2 and 5 percent. This is a viable borrowing option for many fix and flip investors.  Many of us have traditional refinance options available such as working a mortgage company, bank or Federal Government program.  But there’s always going to be a situation where you need cash fast and that’s where a cash out refi from a private money lender can help out.

Second Trust Deeds

This form of real estate financing is like a long term mortgage in many ways. It lets the borrower get private lender funding to purchase a property by putting it up as collateral. With a 2nd deed trust, there are often a different groups involved with the real estate investment. There is person who initially, the private real estate financier, and a trustee. You will often see a title company or banking institution retain the title to the property until the loan has been paid off in full.

The laws regarding which security instruments can be used vary from state to state. A second trust deed can be either a home equity loan backed by a financial institution or a second mortgage. If someone has a second trust deed, there is already one in place that uses the property as collateral. The first trust deed acts as the original mortgage for the property.

Build to Flip

A build to flip hard money loan is a good option for experienced property investors who want to build a whole new property from the ground up. financing for commercial construction These loans are short-term and can help investors finance the construction of new properties for the purpose of later selling them. Some of the funds from this type of loan are given at the closing phase to cover the cost of lot acquisition.

The amount of the loan is based on the lot value as well as any repair or construction expenses. There is no minimum credit score that is required to obtain one of these loans, which is why they are so incredibly popular with investors. This type of loan doesn’t require a lot of paperwork, so it is a much faster process overall.  Compare different companies that provide build to flip and cash out financing in our directory.

Rental Refinance

Those who want to build up their real estate portfolio might consider getting a rental refinance hard money loan. You refinance a rental property of yours within as little as 10 days, as the process for getting one of these loans is quite expedient. There is no minimum credit score required, and it’s a great borrowing option for many people.

There are some requirements for these real estate loans that you should know about. You can only choose the rental refinance option for single-family residences with 1-4 units, and only investment properties. This is a great option for investors who want to pay off the mortgage on their investment properties at a lower interest rate. If you are having difficulties making payment on the original mortgage, this loan can certainly help. You will have to submit proof of income when applying for rental financing from a private money lender.