Hard money loans have long been an alternative to traditional mortgages. They offer a way to borrow money quickly, and 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 many reasons and most are happy to pay a higher interest rate and not have to deal with a lengthy underwriting process. If you are looking into getting a hard money loan, there are a few things that you will need to consider before going forward. Ultimately, you will be glad you decided to do this research.
Interest Rates For Private Money Lenders
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) and the interest accumulated on the loan since you took it out. The interest rate you end up paying on your loan will depend on your loan type. Most hard money loans have interest-only payments, which allows you to pay only the interest on the loan. The loan’s principal 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 or Property
The value of the home you want to buy will be an essential factor in your loan application’s approval. The property’s value will not be determined by what you pay for it or the list price but rather by the current market value. The higher your house’s loan-to-value ratio is, the higher the risk will 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 determine what your house may be worth.
You’ll Make a Balloon Payment on most Private Lender Loans
The monthly payments you make on your loan will only 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 making this payment. However, it is important to have a realistic timeline when it comes to making repairs and selling the property. 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 getting approved. These lenders don’t even look at applicants’ credit scores, 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
You must take the time to find the right private money lender for your hard money loan, as many are out there. You will get one of these loans from a private lender instead of 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 a person can make when taking out an online hard money loan is choosing the wrong lender. Spend some time reviewing the top companies on our private money lender list. This directory is revised monthly with terms and payment restrictions updates as of 2024.
Types of Hard Money Loans to Consider in 2024
There are numerous types of private money loans, and you will want to learn about each in detail before going forward. Interest rates for hard money loans are much higher in 2024 and should continue to increase over the next few years. That’s why choosing the best lender is important, as you can save thousands with an interest rate less than 1% lower than other lenders! 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 On What To Consider With Private Money Lending Offers
There is no question that a direct hard money loan can be handy 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.