What is a Hard Money Loan?
Hard money loans are those that are for a short-term basis and are focused on the hard asset that the loan is based on. They don’t usually rely on credit scores and income; they rely on the property itself. These are usually faster, and they require less paperwork than the traditional loans. These are good for people who are renovating homes or businesses and will have more equity in it after they are through. These homes and businesses are then sold for extra funds, and the loans are then paid off. The lenders are lending the funds on the projection of the sales, not on the current value.
If you know how hard money loans work, you can find a better lender that will do what you need them to do. You can find hard money loans almost anywhere but you need to be careful. You want to find a reputable lender and not one that will take advantage of you.
This article will answer some questions you might have about hard money lenders. It will also give you some questions that you should ask. You can also find more information by doing more research.
Questions About Hard Money Lenders
1. Can I Get One for My Current Home? Because it is your primary residence, you may not get a hard money loan for your current home: https://www.liquidlogics.com/hard-money-loan-requirements/. You usually can’t even get one if you are an individual – you will need to have an LLC. This is because of laws and regulations that forbid this from happening.
These are for homes that you will be selling in a short time. They are for businesses that do this to make capital and supply homes that are renovated to customers. This is a short-term solution to funding homes.
2. Is Credit a Factor? Instead of focusing on the bottom line for lending, these loans focus on trendlines. A credit report will still be pulled, but the numbers aren’t looked at as much as the trendlines are. This allows lenders to provide funds to those businesses that have dips in their monthly earnings that rise again after the sale of the homes.
These lenders can look beyond the dips and valleys and will look at recent trends. They would expect to see these and could still finance a project if they see positive trends. Even with some adverse actions in the past, lenders could look past those negatives, especially if your recent history is clean.
3. What is the Difference Between Hard Money and Private Lenders? There could be a lot of differences between the two, but some are very common. See more here. Generally, a private lender will describe an individual that finances with their personal capital. A hard money lender is a company or organization that will finance projects and real estate investments for their living.
4. What is the Typical Length of One of These? The typical length for one of these is twelve months. Some companies will lengthen this if conditions warrant it. You usually will not be punished for prepayment for them if you go to a reputable lender.
You are free to pay down your loan during the time of the project if you wish, or you could pay it in full when the project is finished. However, if you hit the twelve-month maturity, it will build valuable flexibility for you. This can look good for you in the future.
5. What Points and Interest are Involved? There will generally be zero to three origination points on these loans, and an interest rate between nine percent and fourteen percent. Usually, these loans are interest only until they mature. This allows you to maximize your cash flow during the middle of your project.
6. Will it Cover Repairs? Usually, these loans are exclusively for fix and flip properties. That is the main reason behind hard money loans – flipping homes. This is one of the most popular real estate strategies – fixing, cleaning, and selling homes.
7. Do You Need to Bring Your Own Funds to the Table? You need to have at least ten percent and up to twenty percent of the deal out of your pocket. This helps you to stay focused on the deal and helps you to be successful. It also helps you to look at your own capital, to look at contingencies and making your own emergency fund.
8. Do the Hard Money Lenders Care About Specifics of Projects? They will look at the specifics of your projects because they are industry experts. They will closely look at your strategy and plans for your project. Loan experts and underwriters will look through the specifics of it to see that you have a well-developed plan.
9. How Much Can You Get? You can get anywhere from one hundred thousand dollars to about three and a half million dollars through one of these loans. You need to be well-qualified to get the maximum amount with a good record behind you.
10. What is the Process You Need to Go Through? You first need to contact a hard money lender to see what the typical terms would be. You need to make sure that you go through the basic deal economics to see if your project is a good fit with the lender. After that, you will fill out an application that includes purchase contracts and the scope of the work that will be done.
Conclusion
There are many questions that you should ask a hard money lender to make sure that this type of loan is what you are looking for. This is a great way to get funds for fixing and flipping homes. This is a great way to fund your project.
