The Hard Money Rehab Loan

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You’ve applied for a housing loan with your local bank. After waiting for a few business days, you find out that you’ve been denied. You’re not alone in this. Nearly 11 percent of all people were denied a home loan in 2017 alone according to the Customer Financial Protection Bureau. There is an easier way for you to get a home. It’s called the hard money rehab loan.

It will allow you to find a fixer upper, do some repairs, sell it, and pocket the money. You could then take that money and do whatever you want with it. Including putting a down payment on that home you were looking at.  Sound good to you? Keep reading for a complete guide on these types of loans including the requirements, rates, terms, where to find them, and what to do once you’re approved.

Interest Rates

The interest rates for hard money rehab loans can be high. They run anywhere between 7.5-12 percent. The reason why it’s so much higher than traditional mortgages is because of the risk with rehab projects and the short 12 to 36 month loan time. As far as the loan amount that you’ll receive, it’s determined by the lump sum of the purchase price and the credit line for the expected repair cost. This usually adds up to around 75 percent.

Pre-qualification Process

To get started you’ll go through the prequalification process. You’ll need to turn in two or three months’ worth of your personal bank statements. Your credit score will need to be at least 550 which is about average. Lastly, you’ll need to answer a few questions about yourself, the property, and your expected offer amount. Make sure you have your tax ID ready to go too.

Final Approval Steps

Once you’ve been prequalified for the loan, you’ll need to take a few steps to get that final approval. Gather the purchase contract for the property you’re looking at along with a list of past projects that you’ve done and turn them into the loan provider. The lender will send back an application for you to fill out. Keep in mind that there will be an application fee of a few hundred dollars. Give or take.

Your Financing

When you’re approved for financing the lender will go everything with you about interest rates, fees, and a closing date. Once you’ve signed on the dotted line, you’ll be in the clear to get your loan. It’s not very often that the lender will give you all of your rehab money upfront. For example, if you have a 5,000-dollar budget on redoing all the floors in the home, you’ll get half of it before you start the floors and half when they are done.

Titles

When your Rehab loan is in underwriting, your lender will run a title search. The title to the home that you’re flipping will be required by the lender. If you’re not sure what title company to go through, your lender can suggest a few. Once this is done, you’ll receive a commitment letter from your lender letting you know when the loan closing can happen. There will be a closing fee.

Do your Renovations

Finally, you own the property and have your loan. Now you can get to your renovations. These need to be done professionally because according to Daniel Bortz, writer and licensed realtor, “even small cosmetic flaws, like an ugly shade of carpet, can make some home buyers run” but they need to be done quickly. The longer it takes you to sell the property, the higher or carrying costs will be. This means less profit for you.

Now that you’ve finally got the property renovated, you’ll need to start your exit strategy. Most people do this by refinancing into a more permanent loan or selling the property for a short-term investor. Whatever you do, you’ll need to do it quickly to avoid extra holding fees.

Getting Your Hard Money Rehab Loan

If you can’t seem to get approval for your home loan, you can go forward with a hard money rehab loan. It’s a bit more work but at the end of things, you’ll have the money you need for another home. Talk to your lender today.

Sources:

5 Strange Things That Can Stop a Home From Ever Selling>Daniel Bortz – https://www.realtor.com/advice/sell/problems-home-sellers-had-to-change-to-sell/

7 Reasons Your Mortgage Application Was Deniedhttps://www.magnifymoney.com/blog/mortgage/7-reasons-your-mortgage-application-was-denied/

 

 

Pros and Cons to a Hard Money Loan

Pros and Cons to a Hard Money Loan

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Personal finances are an important part of your past, present and future. After all, you need money not only to survive, but also to do the things you want to do in life. Sometimes, you may fall short of your savings goals or need to borrow money to make a big purchase. That's where hard money loans can come in.

What are Hard Money Loans?

First of all, it's important to understand what a hard money loan actually is. This is a specific kind of asset-based loan financing in which the funding is secured by real property. In other words, a hard money loan is a form of funding using real estate/property as collateral, rather than the creditworthiness of the borrower. If you have poor credit or struggle to get a loan from traditional lenders for what is deemed a risky property, a hard money loan could save the day. In a world where debt is so common – 58% of college graduates have student debt, according to the Kennedy School at Harvard's Institute of Politics – hard money loans can make a major difference.

These are short term loans with higher interest rates, issued by private individuals and companies that are willing to take on the risk. Many people use hard money loans in their real estate endeavors, with flipping houses being the top example. Property flippers who want to renovate and resell the property within a year or sooner may turn to hard money loans for help. Although the interest is higher, if the borrower intends to pay off the loan quickly, usually within one to three years, then it can be a worthwhile financial move.

Hard money loans are often easier to obtain than traditional forms of financing, and as long as you do your research beforehand and choose a qualified, suitable hard money lender, you should have a good experience. While flipping houses and turnaround situations is a primary reason why hard money loans exist, this funding can also assist borrowers with low credit scores but considerable equity in their property. Plus, hard money loans can be issued quickly, so they can be a good way to avoid foreclosure in the short-term.

Hard money lenders pay less attention to a person's credit score and concentrate more on their property assets. If you've been turned away from traditional funding sources such as a bank or mortgage broker, it may be time to explore the benefits of a hard money loan.

What are Pros of Hard Money Loans?

As with anything in life, there are both pros and cons to a hard money loan. Depending on your situation, you may find that the pros far outweigh the cons. Perhaps one of the biggest advantages to hard money loans is that they move quick. You don't need to wait for weeks and months on end to get approved for this kind of funding. Overall the U.S. has a mind-boggling $10 trillion in mortgage debt alone, as reported by the Federal Reserve, so it's crucial that you make the right choice when it comes to your type of loan. If you need money fast, and you don't mind paying higher interest for the short-term, then a hard money loan could be the solution you've been looking for.

Another pro associated with hard money loans is the relatively straightforward and simple approval process. If you have the right criteria, namely a property that can serve as collateral, you may be approved faster than anticipated. So long as you're working with a trusted hard money lender, you may get great financial news. Being approved for a hard money loan is a big moment, especially if you've want to get into property flipping or you've been refused traditional forms of lending.

It can be frustrated and disappointing to be rejected by banks and mortgage brokers time and time again. If you've been let down by potential lenders and you're feeling flat about your financial circumstances, a hard money loan could have a positive impact on your life. That's because these loans are an attractive alternative for those who could not get a traditional loan due to poor credit history or other circumstances. Hard money lenders tend to be more flexible, as they don't use a typical underwriting process when it comes to approving loans. Instead, these lenders evaluate every deal individually, meaning you may be able to discuss repayment schedules, interest rates and more. Rather than dealing with the big banks and large corporations, you may be working with an individual or small-business minded hard money lender who is more likely to meet your needs.

What are Cons of Hard Money Loans?

Of course, it's also important to consider any potential downsides to hard money loans, which will be dependent on your current financial situation. Generally speaking, the biggest disadvantage to hard money loans is that they can be more expensive in terms of interest. Because they are so fast and flexible, hard money lenders are able to tack on higher interest rates to accommodate the loan terms and conditions.

If you're planning on paying back your loan within a few years, the increased interest rate won't be too much of a factor for you. This is particularly relevant for property flippers who know they will be reselling the property for a profit in a short amount of time. For homebuyers who are planning on living in their house for years to come, higher interest rates may pose a concern. That's certainly something to consider when planning for the future and deciding on which type of funding is best for you and your loved ones.

Just like any other funding option, hard money loans aren't perfect. You must keep in mind that lenders may use more conservative methods to evaluate your property than you'd expect. Combined with the expensive fees, hard money loans need to be carefully thought about before signing on the dotted line. If it seems feasible for you, and you've met with a reputable hard money lender and read through everything, then you should know what to expect and hopefully have success with your loan in the future.

If you're interested in learning more about hard money loans and figuring out if they would work for you, then it's time to contact your local hard money lender today. They'll be able to help you further understand this funding and make the right financial move for you.

Sources: https://iop.harvard.edu/student-debt-viewed-major-problem-financial-considerations-important-factor-most-millennials-when

https://www.federalreserve.gov/data/mortoutstand/current.htm

https://hardmoneylendersonline.com/hard-money-loans

Why Hard Money Is A Great Option For Investment Property Loans

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Home flipping has become increasingly popular again over the past few years. Real estate investors shunned it as a result of the Great Recession, but they are now once again cautiously optimistic. In fact, according to a report by Attom Data Solutions, 2017 was an 11 year high.

ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q4 and Year-End 2017 U.S. Home Flipping Report, which shows that 207,088 U.S. single family homes and condos were flipped in 2017, up 1 percent from the 204,167 home flips in 2016 to the highest level since 2006 — an 11-year high.

There Is Money to Be Made in Home Flipping

The total amount spent on flipping was $16.1 billion in that year. All real estate investors know that it can be very difficult to get a loan for an investment property and that it is vital that the loan is right. In fact, this can be the difference between failure and success. This is for anyone who wants to get involve in flipping properties or investing in these properties and become a landlord.

Many of us like the idea of making extra money. Who doesn’t want a little more cash in their pocket each month? Becoming a landlord is a nice way to earn some passive income, but not everyone can afford to buy a new place or purchase an apartment building.

There are numerous options available to you if you want to get a loan for an investment property. Traditional banks continue to be not cautious, however, which means you will have to do a little bit of research into other potential financing options. They include home improvement loans, home equity lines of credit (HELOC), cash out refinance options, partnerships, seller financing, FHA loans, personal loans, and hard money loans.

All About Hard Money Loans for Investment Properties

When people want to get a mortgage for an investment property, they often consider the traditional lenders, i.e. banks, first. However, since banks continue to decline applications for these types of properties, investors must become a little bit more creative. House Heroes is a Florida based house flipping startup business who is looking into hard money loans instead.

We’ve been buying property in Florida for over 5 years. We help homeowners sell in all sorts of situations: sell fast, major renovations, inherited house, relocation, foreclosure, eviction, late taxes.

Hard money loans are incredibly popular with home flippers. It means that money is borrowed from a business or individual and this money is used to fund a real estate investment. While a non-traditional type of loan, it is often possible to borrow more than the sale value of the property. This means that money remains available to upgrade the property, which in turn means an investor can sell it rapidly. Of course, this is a gamble as it is necessary for the property to then sell for more once it has been upgraded, eventually leaving the flipper with a profit. Ideally, the profit is then used to fund part of the next property, and so on.

However, it is common for hard money lenders to want to see an investor have some money to their name as well, usually at least 20% of what they hope to borrow. Additionally, in return for a quick and easy application process and a willingness to take risks, borrowers do have to pay a much higher interest for the loan. This is understandable, since a hard money loan is private money and people would only agree to put some of their money at risk if the gain is large enough. Additionally, provisions are in place that enable hard money lenders to rapidly repossess a property if payments aren’t made.

Hard Money Direct Increases Your Financial Power

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Obtaining money for an upcoming project can be hard if you choose the traditional route which utilizes a bank or credit union. It can mean a lot of time spent sitting in an office, signing too many papers, and playing a waiting game that you may lose. An exciting discovery for businesses and individuals looking for a loan is there is another way.

Hard money loans are unique in that they allow individuals and businesses to receive a loan when they would have been rejected by a traditional lender. This type of loan does have cautionary characteristics but still stands strong as a way of increasing your financial power. According to the chief economist of Lending Tree, “If you’re not able to access a traditional loan, then maybe there’s an opportunity here.” For the estimated 68 million people who have bad or low credit scores, according to Vantage Score, this opportunity could not come at a better time.

Let’s take a deeper look into three ways to increase your financial power with a hard money loan.

Streamline the Process

No one likes to spend their free time in an office waiting for answers. Traditional lenders, such as banks and credit unions, are basically playing the middleman of the loan process. In essence, you must talk to a loan officer who then talks to the bank. This “conversation” can take weeks. Underwriters must construct your loan portfolio and write out the terms. This all sounds complicated, right?

In order to gain financial power, take out the middleman. Take control of what you need and how you get it with a hard money loan. Because you will be doing business with the lender themselves, there are no waiting periods to deal with. No, let me call the corporate office. No time spent waiting on underwriters.

Paperwork is another area which can get cumbersome. Hard money lenders will have this down to a science. There are fewer restrictions, therefore, requiring less documentation. In layman’s terms, hard money lenders are more concerned about the collateral than the documents. A fine-toothed comb is not needed in this process.

Flexibility with Hard Money Loans

Everyone needs flexibility in their lives. Why should this be any different in your finances? Hard money loans offer flexibility in which the receiver of the funds can determine how long they need to repay the loan. Because you are dealing with the lender themselves, there is some leniency with the terms. Most lenders allow for repayment times which range from 12 months to five years.

The ability to have a voice in your financial present and future is vital. It gives you the power to negotiate the terms. There are no requirements on terms, leaving you freedom and flexibility.

Financial Leverage

As we have already established, a hard money loan is a way to obtain money quickly for individuals and businesses. This is especially true for real estate entrepreneurs. For example, flipping houses have become big business in the past decade. To flip a house, one must be bought quickly, remodeled, and then sold. Since fabulous deals don’t hang around long, buyers need to snatch them up quickly. With a hard money loan, flippers have a way to get the money they need quickly and on a short- term basis. Long term this could mean more profit in their wallets and better chances of continued success.

Bottom Line…

We all need help from time to time. Sometimes we need help paying the bills or making our dreams come true. When times like these arise, it should not be hard to get help. It should not be difficult to find a way to stand on our own two feet.

Hard money loans are a unique way to get the help we sometimes need. They allow individuals and entrepreneurs to streamline the process, have flexibility, and use leverage. Hard money just makes sense. If you have collateral or assets, then you can take advantage of these loans. They are definitely worth considering. In order to obtain a hard money loan, contact a lender and begin living your dreams.

References

Prittchard, Justin. The Balance. n.d. https://www.thebalance.com/hard-money-basics-315413.

Wiebe, Jamie. Magnify Money. n.d. https://www.magnifymoney.com/blog/mortgage/the-pros-and-cons-of-a-hard-money-loan/.

Residential

Hard Money Residential Lenders On The Rise

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Hard money lenders have definitely found their niche in the real estate industry. This unique form of loan is extremely common in the residential housing arena. But why are we seeing an uptick in the number of lenders taking part in the action?

Unlike traditional mortgage loans provided by banks, hard money lenders use the value of the property as collateral against the loan. These lenders aren’t as concerned with a person’s credit history. Instead, they focus on the value of the home and the borrower’s equity. Although this may seem like a risky venture, many individuals and small companies are getting into hard money lending.

To get a better idea of why these types of lenders are on the rise, it helps to know who stands to benefit from them the most. The answer is real estate investors and homebuyers who can’t qualify for a traditional mortgage loan.

Let’s take a look at the benefits of hard money loans along with the people going after them to get a better understanding of why they’re so popular right now.

Benefits of a Residential Hard Money Loan

We mentioned the fact that hard money lenders don’t place as much importance on a borrower’s credit history when considering them for a loan. This is a huge advantage over a traditional bank loan, in which a person’s credit score has a direct impact on whether or not they get approved.

However, there are a number of other advantages that make hard money loans attractive. Some of the primary benefits to borrowers include:

  • The process of applying for and receiving the loan is quick and easy.
  • Investors can purchase residential property without having much money to begin with.
  • Borrowers have more freedom to negotiate repayment terms.
  • Hard money lenders will typically consider any type of property.
  • Flexible down payments.

Although there are some downsides, such as higher interest rates and lower loan-to-value ratios, they still provide exciting opportunities for people needing quick capital. Real estate investors and homebuyers have made hard money a lucrative business for lenders looking to expand their reach in the real estate market.

Investors and House Flippers

According to stats collected by ATTOM Data Solutions, 49,059 single-family homes were flipped during the first quarter of 2019. Surely all of these investors didn’t have the capital they needed to purchase, renovate, and flip their homes. Instead, they went to a hard money lender to fund their projects.

House flippers like these loans because they’re easier to qualify for than bank or FHA loans. In addition, they can acquire the funds quickly in order to make timely bids on homes they feel would be smart investments. A traditional loan simply takes too long. Furthermore, because house flippers typically renovate and sell their investments quickly, they’re able to adhere to the shorter repayment periods of hard money loans.

Long-term real estate investors also tend to work with hard money lenders to secure the capital they need to complete renovations on a piece of residential property. Often, they need to do this before refinancing in order to get a new mortgage.

Residential Home Buyers Need Fast Cash

Ray Brown was right when he said, “The best time to buy a home is always five years ago.” Residential prices are up from last year. According to the Federal Housing Finance Agency, home prices rose 5.2% from April 2018 to April 2019.

This is bad news for home buyers, especially if they can’t qualify for a loan. Many families are now having a hard time securing mortgage loans from banks with high standards when it comes to credit scores.

Many, however, are turning to hard money lenders to help them buy their first home. Because the lenders are more concerned with the value of the property attached to the loan, a buyer with poor credit history still has a chance.

Furthermore, many homeowners who are facing foreclosure are opting for hard money loans to help them refinance their mortgage. As long as they stick to their repayment terms, they can continue living in their homes.

Regardless of whether you’re looking to get into the lucrative business of house flipping, or simply need a quick loan to buy your first family home, a hard money lender can help. The opportunities they offer simply aren’t possible with transnational home lenders.

Resources:

https://www.attomdata.com/news/market-trends/flipping/q1-2019-home-flipping-report/

https://www.fhfa.gov/AboutUs/Reports/Pages/House-Price-Index-Report-April-2019.aspx

6 Key Awareness Points Before Borrowing Private Money

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A lot of people are interested in taking out hard money loans, particularly if they want to purchase a fix and flip property or a rehab property, which banks won’t usually lend against. Indeed, there has been a significant increase in interest in these types of loans, which are usually taken out for around a year. Using such kind of private money is a great way to build a real estate investment portfolio, but it is important to research whether or not it is an appropriate solution for you. Below are 6 key factors to consider.

1. Make Sure You Choose the Right Lender

You should never simply pick the first lender you come across. Instead, there are questions to ask and considerations to make.

When you want a loan on a short term basis without much documentation then this is the best option. Private money lending is famous for the convenience it avails to persons who require financial funding but may fail to meet the threshold of banking institutions. Bearing in mind the minimal formalities, it brings about risk in dealing with such transactions as you also don’t want a fraudulent money lender to take advantage of you.

Make sure that your lender has experience in the type of deal you are interested in. If you want to fix and flip an industrial property, for instance, find a lender that has successfully invested in that before.

2. Understand Your Financial Role in the Flip

A lot of people like the idea of fixing and flipping because they think they can make a lot of profit. This is also due to television programs that make it appear like such an activity is a lot of fun. However, to do so successfully, you need a lot of expertise and experience and you have to be able to handle the risks involved as well.

3. Try to Help Build Communities by Investing

When you take out a private money loan, you actually invest in a neighborhood and that is a significant responsibility. The money will be used to improve a local area, boost business income, create jobs, and more. When you invest like this, you will see tangible improvements unlike what you would see when buying stocks and bonds. Your lender, therefore, should have a vested interest in the community as well.

4. Don’t Worry If You’re Not Rich

When people think about real estate investors, they often think of property tycoons like Wang Jianlin.

Wang Jianlin, a 1954 born Chinese businessman and philanthropist, serves as the chairman of the Dalian Wanda Group, which is also China’s largest real estate company, as well as the world’s largest movie theater operator. He owns 20% of the Spanish football club Atletico Madrid.

In reality, however, real estate investing is open to anybody, even if you need to get a hard money loan to fund your deals. Of course, you should never put all your eggs in one basket, so you have to find a balance between how much of your own money you can put in, and how much of a private money loan you will need to get.

5. Remember That You Will Have Tangible Assets

Getting a private loan means that you will invest in a material asset. The hard asset is the collateral for the loan, and it is also from this that it gets its name: ‘hard’ money lending. Owning property is a serious commitment that you have to be ready for and you must also understand that tangible assets are often slower to turn into a profit. But when they do, the profits can be substantial.

6. Have Realistic Expectations

Last but not least, it is important to understand that you will not go from being a first time investor to being the President of the United States. Even Donald Trump had to go through several steps before achieving that. When you start at the bottom, the road to the top is long but satisfying.

Finding Hard Money Equity Lenders

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Most people aren’t aware that there are ways to bypass the bank when looking for a loan. If investing in fixer-upper properties is in your horizon or you find yourself in need of cash because life situations arise that are out of your control, finding a hard money equity lender may be beneficial to your needs.

What Does Hard Money Equity Mean?

Hard money loans are asset-based loans that are primarily used in real estate transactions. In simple terms, it is a private loan that doesn’t require mounds of paperwork. A borrower receives funds and the loan is secured by real property that is used as collateral. If the borrower defaults, the collateral becomes the lenders.

“These are private investors who, if the interest rate is high enough and the perceived risk is low enough, they will put the money up,” says Pam Strickland, owner of a mortgage consulting service.

It is called “hard money” because borrowers are charged a higher price in both interest rates and orientation fees.

A hard money loan is funded by private investors as opposed to conventional lenders such as banks or credit unions. The terms of hard money loans are usually short; typically, 6 months to 3 years.

Finding Hard Money Loans Tips:

  • Find a profitable property. A hard money equity lender will not loan on a property that is going to lose money.
  • Partner with someone who is experienced. If you are new to investing, consider partnering with an experienced hard money lender with a portfolio of properties. They can help you get the loan you need and show you how to make the property profitably.
  • Cash reserves are a plus. Hard money lenders prefer to work with experienced investors who have a record of being successful. Being a new investor won’t result in an automatic no, but your chances of getting approved will increase if you have substantial cash reserves and collateral.
  • Have an exit plan. Most hard money borrowers are flipping properties for profit. Show the lender what you are doing to the property in a very detailed plan and emphasize how much money it will make.
  • Keep working on your credit score. While many lenders loan to people with bad credit, you still should try to raise your score. Maintaining a decent credit score will help secure lower interest rates and approval rates for future loans.

Why Use Hard Money Lenders?

Why would someone want to borrow money with a high-interest rate? Hard money loans can be useful for individuals with poor credit, currently unemployed, or need fast cash. According to the Urban Institute, the mortgage denial rate in 2017 was 31% largely due to poor credit. Some of the known advantages to hard money equity are:

  • Hard money loans are fast. Hard money loans can be closed in days or in a few weeks. Getting a private money loan closed quickly is very important to borrows seeking to purchase investment properties. You could easily lose the home to another buyer if you don’t act quick.
  • Hard money is flexible. Lenders of hard money look at each loan deal individually; they do not use formal underwriting like a bank. Most of these lenders are small companies so there may be more room to negotiate the terms of the agreement.
  • Approval can be easier. The collateral you are borrowing on is the most important factor in a hard money loan, especially for borrows with bad credit. If you are purchasing an investment property, lenders will usually only loan out what the property is worth. Many hard money lenders don’t care if you have a foreclosure or bankruptcy on credit; their biggest concern is profitability.

Conclusion

Although the majority of hard money loans fund real estate fix and flip projects, in 2017, Forbes reports that more borrowers are seeking loans for bridge loans (money to cover the gap between two transactions), construction loans, development, land acquisition, and short-term refinancing. Regardless of how the loan is used, this strengthens hard money lending’s noteworthy market share as compared to traditional financing.

Resources

Forbes: How The Rise Of Private Lending Is Reshaping The Mortgage Market  https://www.forbes.com/sites/forbesrealestatecouncil/2017/12/05/how-the-rise-of-private-lending-is-reshaping-the-mortgage-market/#260f681452ae

Urban Institute   https://www.urban.org/sites/default/files/publication/98823/real_denial_rates_2.pdf

SF Gate Home Guides   https://homeguides.sfgate.com/hard-money-lenders-2627.html

 

 

How Does A Hard Money Loan Work And Who Is It For?

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A hard money loan is a unique financial construction. It is a short term loan and is offered as interest only. These loans are perfect for those wanting to purchase distressed rehab properties, for which it is impossible to get a traditional mortgage. The interest rate on a hard money loan tends to be a lot higher, with averages of around 12%. However, they can be completed in as little as 15 days and they usually run for no longer than a year, after which the property can be flipped.

Anyone interested in investing in properties very quickly, therefore, may want to consider this type of loan. While they are expensive, they are also quick and reasonably easy to obtain. This makes them interesting for those who would otherwise be declined.

When applying for a loan from a normal financial institution, you will be expected to meet many hard-set requirements. […] As long as you have a high-value asset with at least 20% equity stake in it, there are good chances that you will qualify for the loan.

How Do Private Loans Work?

Private loans are designed to help fund a real estate investment’s purchase and renovation. They are quick to obtain, particularly compared to a traditional mortgage, and they have very flexible acceptance criteria. Fix and flippers, who buy and sell properties within a year, are particularly interested in them.

In addition, they can also be beneficial for a long term investor who holds a property but then switches to a traditional mortgage after renovating a property. As such, the timeline of investment is not so important. Rather, it is about needing money to buy a property that is in disrepair and having the funds for the repairs. Typically, people only pay interest back on their hard money loan while it is running. Generally speaking, these loans also have no prepayment penalties.

While lenders want their money back also – interest is still important to them. When you prepay, you are cutting into the overall interest a lender can earn on financing your loan.

What this means is that, should you complete the work on the property sooner than expected, you can pay off the loan sooner as well. Typically, investors like these types of loans because they pay out so quickly and have minimal requirements. These benefits are so great, in fact, that they are happy to pay more for the loans. Interest rates usually range between 7% and 12%, and lender fees (points) are between 1% and 10%.

Should You Take out a Hard Money Loan?

If you are a short term investor, such as a fix and flipper who doesn’t intend to hold a property for more than 12 months, then you may want to consider a hard money loan. If you are a long term investor, then you should really only consider this type of loan if you know that you will be approved for a more traditional, long term, affordable loan after a reasonably short period of time. Typically, two kinds of investors will consider private lending.

First, there are the fix and flip investors.

Fix and flipping homes may seem like a pretty simple concept. Buy a house that needs some work, fix it up and sell the house. The truth is it takes a lot of time to find the right deal, find the right financing, find the right contractor, decide what to repair, maintain a property, value a property, make sure all the needed repairs are done and then sell the house. Fix and flipping is not something you can spend a couple of hours on a week and be successful.

The reason why fix and flippers look for a hard money loan is because it allows them to finance the purchase price of the property and the money required to pay for the work that needs to be done on the property. Hence, fix and flippers try to find homes in a very poor condition, fix it rapidly, and sell it for, sometimes, huge profit. They find these properties through lender owned REO listings, foreclosure auctions, and short sales.

Usually, investors are able to receive a private loan based on the ARV (after repair value) of the property. They receive the funds, buy the property, and fix it using their hard money line of credit. These investors do have to have some money themselves in order to be accepted for these loans, not in the least because they may have to float rehab costs as it can take a little bit of time before the lender pays out. Once renovations are completed, they sell the property and pay back the lender.

The second type of investor interested in private loans is the buy and hold investor.

Buy and hold is a passive investment strategy for which an investor buys stocks and holds them for a long period regardless of fluctuations in the market. An investor who employs a buy-and-hold strategy actively selects stocks but is not concerned with short-term price movements and technical indicators.

Typically, these investors use a hard money loan to purchase and fix a property. Once that is completed, they take out a traditional mortgage on the property itself and pay off their private loan. They then hold the property, either for them to live in or rent out to tenants and become a landlord. Buy and hold investors looking for a hard money loan generally purchase distressed properties, which means a traditional lender will not fund the deal. This means that they bridge the time period between buying and fixing the property and it becoming a property that a traditional bank would be happy to provide a loan for As such, the loan in this case can be seen as a type of bridging loan.

Qualifying for a Hard Money Loan

Whether you are a fix and flip or a buy and hold investor, one of the biggest benefits of the hard money loan is that it is so easy to qualify. The approval process is also incredibly rapid. However, you do have to be realistic about the serious financial commitment you are making.

Hard Money Lending Advantages

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Being able to get money for a property investment in a short period of time isn’t always easy. Many borrowers tend to go to financial institutions to try to get a loan to finance a property, but that isn’t always the best option. It’s important to consider other financing options, such as hard money loans. With the average home in America costing over $300,000, having multiple finance options is crucial for buyers. Hard money loans sometimes get a bad rap because people don’t take the time to really understand why they can be so beneficial. The following guide walks you through a few of the advantages that come with a hard money loan.

Repayment Terms with Hard Money Loans Are Often Negotiable

When you get a loan from a financial institution, you are bound to the terms they set for the loan. This could mean the interest rate you pay, the date the payments are to be made, how large of a down payment you have to give and more. You do not have a say with most of the terms of the repayment agreement.

Hard money loans work differently. The private lenders work with you to ensure the payments are feasible for you to make. They want to be sure that the payment dates fall on a date that works with your financial situation. This means you can often pick the dates payments are due. If you have to juggle multiple debts at one time, this can be really beneficial overall. According to Consumer Finance, “Getting quotes from multiple lenders puts you in a better bargaining position.” You can compare the rates multiple lenders are offering to negotiate the best terms for your situation.

Qualify for the Loan by Meeting Less Requirements

When applying for a loan with most financial institutions, there are often a lot of hoops to jump through. A hefty down payment is often required. A high credit score and proof of income is needed, as well. With a hard money loan, these factors don’t come into play. The lenders allow you to use the property as collateral for the loan. This makes getting approval the loan less of a hassle.

Avoid Penalties for Repaying the Debt Early

Traditional lenders often charge a fee when you pay off the loan early. This is because they counted on the money, they were going to get from you in interest over an extended period of time. When you pay off the debt early, they acquire far fewer interest payments.

Hard money lenders don’t often require you to pay a fee for paying off the loan early. An origination fee is charged at the beginning of the loan that covers fees for processing the loan. Hard money lenders actually like when you pay off the loan early. They get their money back so that they can invest it in other things. It can also build a rapport with the lenders to make it easier to get approval for a loan in the future.

Gain the Ability to Make Offers on Properties Quickly

The downfall of loans from traditional lenders is that they can take a long time for approval. Every day that you go without approval for the loan is a day that someone else may be buying the property that you want to buy. You can often get approved for a hard money loan in as little as a few days. This allows you to make offers on homes quickly and easily.

Better Your Chances of Getting a Property

When someone is selling a property, they often want the buying process to finish as quickly as possible. Being able to get money quickly betters the chances of a seller accepting your offer over someone else. This can mean that you are able to get premium properties at rock bottom prices.

When choosing a hard money lender, it’s important to talk to them about the property that you plan to buy. You need to know how long you plan to own the property because you will be responsible for the payments until you are able to sell it. Hard money loans are designed to be short term. This means you have a very short term to pay them off. Be sure that any property you choose to purchase can be sold quickly so that you can pay off the loan on time.

References:

https://www.consumerfinance.gov/owning-a-home/explore-rates/

https://www.census.gov/construction/nrs/pdf/uspricemon.pdf

5 Reasons a Hard Money Loan is a Smart Choice for House Flipping

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Last year, almost 208,000 single-family homes and condos were flipped in the United States. In the state of Wyoming, the average gross profit from flipping a house was $33,475.

When a new investor starts the process of flipping a house, it’s easy to get confused and overwhelmed. The right choices can earn you a pretty penny, but less wise choices can leave you upside down. Or even worse shut down the entire project before it’s even begun.

One of the biggest choices an investor must make is which type of financing to use – a conventional bank loan or a hard money loan.  Hard money loans have a reputation for being risky, but there are many overlooked benefits to this less traditional method of funding.

1. Speed

If you have ever applied for a conventional bank loan, you know that it can be a complicated, lengthy process. The applications are often multiple pages and contain dozens upon dozens of questions to trudge through. Once the application has been submitted, it can take several weeks to get a response.

If the loan request is approved, the borrower must wait even longer for the funds to become available.  Many investors simply don’t have this kind of time – the amount of time that passes between filling out the loan application and receiving funding can cost the buyer the investment property for which they needed the money.

Hard money loan applications are simple and straightforward.  There are even hard money loan directory websites where you can submit a five minute, no-frills, no-fuss loan application to multiple Wyoming hard money lenders at the same time.

If an application is submitted in person, it isn’t unheard of to receive approval after only a brief conversation with the lender.  Once approved, funds should be available within a week or two.  In certain situations, a reputable lender can have the funds in less than a week.  This quick turnaround provides the investor with a much better chance of securing the property he seeks.

2. Leverage

Many investors like to have multiple projects in progress at the same time.  This is harder to achieve with a conventional bank loan, as a majority of these lenders will cap the number of loans provided to the same borrower at four.  Hard money lenders see the situation much differently.

They view working with a multi-property investor as a good thing because the borrower has more options available to them; therefore, the lender can cross-collateralized the properties if necessary.

3. Flexibility

The first thing many people think of when applying for a bank loan is the vast number of rules, regulations, and conditions.  Your credit score needs to be good to excellent, which means you should have very few to no missed or late payments in your credit history.

Many conventional lenders require the applicant to have a full-time job.  This can present a problem for part-time employees, independent contractors, or those who are self-employed.  Lenders put all this information together to calculate the borrower’s debt-to-income ratio, which shows how much the borrower owes in debt payments each month in comparison to his or her monthly income.

Sometimes, conventional loans even require the buyer to purchase mortgage insurance, which adds another level of paperwork and headaches.  On the contrary, hard money lenders are far less concerned with credit scores and numbers and much more concerned with possession of assets.  If a hard money lender approves a loan and the borrower fails to repay on time, the lender can seize the funded property and resell in order to reimburse the loan money.

For this reason, hard money loans are best for short term financing for projects such as house flipping.  The investor uses the hard money loan to buy the property, then flips and resells the property as quickly as possible.  The money from reselling should be enough to repay the loan in its entirety and make a profit.

4. Competitive Edge

As previously mentioned, hard money financing moves significantly faster than conventional bank lending.  In the world of real estate investment and house flipping, where multiple investors may have eyes on the same properties, speed is crucial.

Property sellers are, in general, looking for two things:  cash transactions and a quick sale.  Hard money loans provide both.  While investor A is waiting several weeks to have his application approved and loan funded, investor B has cash in hand in less than two weeks and is ready to complete the purchase.

Sellers typically go with whichever investor is prepared first, and investor B is now beginning demolition and construction while investor A is still waiting.

5. Wisdom

Hard money lenders are often industry experts.  A lender specializing in real estate investment is likely to be a wealth of knowledge. They will likely share that knowledge since the project itself is the collateral. The success of the project is what will repay the loan, the lender is also invested in the project and wants it to do well.

They do have the option, if necessary, to repossess the property, but this is not ideal.  The relationship between real estate investor and hard money lender is a partnership.  Because the lender wants the project to go smoothly, he will offer his honest opinion of the project. They will bring to light any concerns or potential issues of which the buyer might not be aware.

Through this process, the investor will not only gain wisdom for future transactions but will develop trust in his lender. Increasing the chances of a successful outcome for both parties.

House flipping has become somewhat of a phenomenon in recent years. It’s easy to see why – it’s resourceful, it’s profitable, and it’s fun.  However, it’s also very labor-extensive and can be stressful.

Don’t add to that stress by dealing with a time consuming frustrating bank loan.  Start the project off right with a quick, easy hard money loan. You will be well on your way to a beautiful finished product.  Contact a reputable hard money lender to get started.