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 Hard Money 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 loans usually have a term of 1 to 3 years, and it takes around 15 days to get the funds. 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 type of loan helps these 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 lender can help out.
Second Trust Deeds
A deed of trust is like a mortgage in many ways, as it lets the borrower get a loan to purchase a property by putting it up as collateral. With a 2nd deed trust, there are three different parties involved. There is the borrower, the lender, and a trustee. The trustee is typically a bank or title insurance company that retains 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. 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.
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 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.