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.
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.
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.
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.