How Does A Hard Money Loan Work?

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It is quite common for people new to the real estate investing market to not quite understand all the jargon and terminology that is out there. One particular term is that of “hard money”, which continues to be very poorly understood. That said, more investors are trying to increase their understanding of this type of construction, which could suggest there is starting to be more knowledge of the inner workings of a hard money loan. Let’s take a look at just what it is, however.

Just What Is Hard Money?

In most cases, a hard money lender (HML) is not a bank or traditional financial institution, but rather a small group of investors or even an individual.

Hard money lenders are companies that loan money to fund real estate investor transactions for the short term.

Essentially, the money they lend you is based not on your credit score and ability to repay a mortgage over a long period of time, but rather on the value of the property that you want to buy. Percentage-wise, they are far more expensive than traditional mortgages. However, because they are short term loans, usually only for a few years rather than the 25-year average of a mortgage, they can be quite affordable, so long as you know what you are getting into, and you use the loans properly.

Who Needs a Hard Money Loan?

The two most common types of people who look for hard money loans are property developers and fix and flip investors.

Fix and flip is really a slang term to describe a type of real estate investment deal. The fix part is where a real estate investor purchases an undesireable single family home below market value and does some repairs to the property in order to make it more appealing. The idea is to significantly increase the market value of the property with the minimal expense possible so that the home can be resold for profit.

They use it to fund interesting deals, because it is quite common to be able to get a 100% finance deal with hard money loans. However, in order to get this type of loan, you are likely to have put down a number of important assets. You have to be able to prove that you have a property that you will be able to sell for a profit very rapidly, and most lenders will also want to know why you can’t get a regular mortgage. It is common for new investors to use hard money to get their first property so that they can get started with investing. Others take out a hard money loan, fix a property, and then get a regular mortgage to pay off the hard money loan but keep the property.

What this all means is that a hard money loan allows people to have quick and easy access to significant sums of money, without having to jump through red tape and complex bureaucratic hoops. Indeed, perhaps the greatest benefit of the hard money loan is how quickly you can get hold of funds.

They have lightning-fast approval times (which in reality is around five days). When you get your money faster, you’ll be able to jump on the best deals instead of watching them slip away.

If you do require funds as quickly as that, then it is best to find a local hard money lender. This is because many will want to meet you in person, and they will also want to see the property, particularly if they do not know you yet. Once you have that relationship in place, however, things can move very quickly. In fact, a lot of hard money loans do not require you to complete an appraisal of the property, and the only cost associated is that of the origination fees.

Naturally, different lenders have different rules and regulations in place. You can find a hard money lender that will charge you around 12% in interest and as little as 1% origination fees for a loan of at least one year, or 2% origination fees for loans of shorter duration. If you look properly, you might even be able to find a lender who doesn’t charge any origination fees at all. However, not all hard money lenders are created equally. You must understand that they are a type of secondary investor. You invest in property, make changes, and make a profit. They invest in you, while you make those changes, and they profit. It is a very easy way to make a passive income, therefore, for those who have those types of funds available. Unfortunately, therefore, it is also a sector that lends itself to some underhanded tactics and you do have to be careful to not fall prey to a loan shark, which is a very dangerous situation.

Loan sharks often have ties to organized crime or other gang type activity. If you turn one in to the police, you might be answering to some very angry friends of theirs. At that point, paying the debt will be the least of your concerns.

If a deal seems a little bit too good to be true, or too easy to access, you need to be careful. This is particularly true for your very first hard money loan. Once you have had one successful transaction, you will have a relationship in place that you can build on. Because these lenders need you to make their money, they will usually be happy enough to provide you with loans time and time again.

So what should you look for in a good hard money lender? Usually, they will charge around 13% in annual fees, as well as around 5% origination. However, this does depend on which state you are in. Some will also ask you to pay a commitment fee, which may seem like an unnecessary expense, but may actually be really good protection for both you and them. Do your research, and you should be able to get a really good loan product.
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New Hard Money Lender Launches In Beverly Hills

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Almost everybody around the world would be familiar with the city in California known as Beverly Hills. It is home to Hollywood stars, and the rich and famous. Unsurprisingly, lots of interesting projects start here each year, and they require some significant financial investments in order to be completed. However, startup companies, in particular, find it difficult to get their foot in the door.

Wilshire Fund Opens in Beverly Hills

Fortunately, a new company has been launched, which provides hard money loans to those who want to finance a project in this area. Wilshire Fund, as the company is known, aims to provide an alternative way to finance real estate.

Wilshire Fund is a California-based private lender offering finance solutions for real estate borrowers seeking transaction loans and/or cash-out when traditional financing is not available. Our team of expert loan officers specializes in identifying the best rate and terms for loans tied to residential or commercial real estate assets – ranging in value from $200,000 to $15 million.

Background of Wilshire Fund

Although this particular element of the business is new, Wilshire Fund has already existed for some time. They were first established in 2005, serving all of the state of California. Their specialization has been in both commercial and residential loans. The company is also committed to excellence, hiring only those with the best experience in the field. In fact, although the team is small, they have a combined experience of over six decades in real estate consulting, loan brokerage, and commercial real estate.

What the company particularly prides itself on, is their level of service and personal attention. Compared to other financing options in the area, they offer much better rates. Because the cost of living in Beverly Hills is substantially higher than anywhere else in the state – and indeed the country – these are some very interesting proposals that could open up the market to more investors and individuals.

With the average cost of living in Beverly Hills, CA being 463, that puts it 239% higher than the average of California and 363% higher than our nation’s average. This simple outline of the cost of living index was formulated using prices of: goods and services (weighted 33%), housing prices (weighted 30%), groceries (weighted 13%), utilities (weighted 10%), transportation (weighted 9%), and health care (weighted 5%). Thus, goods/services, along with housing influences the majority of the cost of living index.

Wilshire Fund as Hard Money Lender

As a hard money lender, Wilshire Fund is committed to a personalized service and to make very quick decisions. They offer this commitment to all customers, regardless of the amount they want to borrow. That said, the average price of a home in Beverly Hills is $3,059,600, compared to the national average of $175,700, which does demonstrate that the loan amounts are likely to be substantial.

Some even believe that the prices of homes in Beverly Hills are so substantial that it has become an untouchable market. But for Wilshire Fund, it is about understanding the unique needs of every individual, and the unique offerings of each property. The company has a complex process in place to determine which loans are available, and they are happy to discuss these with anyone interested. In fact, they even offer an online loan application to further expedite the process.

The economic times continue to be incredibly stressful. In markets like Beverly Hills, it seems almost impossible for regular individuals to get so much as a foot in the door. Luckily, hard money lenders like Wilshire Fund aim to change this, thereby ensuring that the market remains not just competitive, but also fair. It is certainly a lender to watch, therefore, and one that could provide people with the opportunity to purchase a luxury property.

Proven Ways To Make Money In Real Estate

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There is no industry in the world where more money has been made than in real estate. Yet, many people still worry about getting involved in it, mainly because they feel that they need to have a significant amount of capital. However, that isn’t true. Hard money loans are just one way in which you can enter this market with little to no capital to your name.

Success Stories

There are numerous success stories out there from people who had made it big in real estate with little to no money. For instance, there is Kent Clothier Sr.

Before his career in real estate, Kent started out in the supermarket industry in the Dallas area, managing a billion-dollar supermarket operation by the young age of 32. Kent brought his expertise in the grocery industry with him to Memphis and began American Wholesale Grocers in 1987. By 1995, he built the enterprise into a $50-million venture, which he sold in the late 1990s before pursuing his passion for real estate and establishing Memphis Invest.

Another example is Dean Graziosi, who has a trailer park background and now owns more than 400 properties. There are many others like these two and what brings them together is not that they had, or didn’t have, any money behind them. It is that they had the guts to try things and now have a fantastic amount of money and knowledge.

Real estate is no more or less difficult than making money online. It is simply about knowing what you do and don’t need. One thing you do not need, which may surprise you, is good credit. You also do not need significant capital. Yes, you will have to start with the lower priced properties at first, but this is where you can start to grow. Lastly, when you start, you also do not need to have any major assets to get financing. You simply need to get creative.

How to Make Money in Real Estate

There are two key ways to generate money in real estate. The first one is the passive method, which means you buy property and hold it, by purchasing turnkey properties.

If you leverage turnkey investment properties, then most everything is already done. All you would need to do is purchase the investment property, let the professionals manage it and collect your monthly cash flow checks while your tenants help you build equity.

Your second option is to earn an active income. The most common way to do that is by flipping properties, after you have added value through renovations or development deals. The big thing to learn about, however, is how you can get your foot in the door without having a huge amount of capital. To do that, there are multiple options available to you, including:

  • Lease options for seller financing
  • Trading jewelry, cars, and other fixed assets you have
  • Finding someone in a distressed situation and taking on their payments
  • Finding an investment partner
  • A loan
  • Peer to peer lending
  • Home equity lines of credit
  • Hard money lending

If you are hoping to earn an active income through real estate, which means you will buy and sell properties in a short period of time, then hard money lending is probably the most viable option, and the most preferred one.

Hard money loans, sometimes referred to as bridge loans, are short-term lending instruments that real estate investors can use to finance an investment project. This type of loan is often a tool for house flippers or real estate developers whose goal is to renovate or develop a property, then sell it for a profit. Hard money loans are issued by private lenders rather than mainstream financial institutions such as banks.

The reason why this works is because real estate is based on a simple cash flow principle. This means that, so long as you earn more than you spend, which means you are in positive cash flow, you are doing well. Real estate investments are some of the best investments around to generate continuous positive cash flow, which is why they are so popular, and why so many people have literally made millions of dollars doing so.

8 Key Strategies to Make Money in Real Estate

There are eight key strategies that you could consider if you want to make money in real estate. You could decide to focus on one strategy at a time, or you could combine them in ways that are suitable to you. You are likely to find that, as your incoming cash flow increases and your assets and savings increase, it will become easier to make money in multiple ways, thereby also increasing the speed with which you make more money in real estate. The eight strategies are:

1. Investing in long term residential rentals, which is a passive form of income with a lot of security: people always need somewhere to live.
2. Taking out lease options, which is a perfect starting point in which you lease a property while also having the option to buy. This is a good option if house prices are going up, because you will have set the purchase price before this increase.
3. Home renovation flipping, for which you either need quite a bit of cash behind you, or a good relationship with a hard money lender. In this case, you purchase cheap and distressed properties, fix them up, and sell them for a significant profit.
4. Contract flipping, which means that you find people who are willing to sell at a ridiculously low price, and bring them together with an investor looking to buy. This means that there is less risk for you, because you will never have to close escrow either. However, it is quite tricky to identify these properties.
5. Short sales, which means you find those who are willing to sell their property for far less than it is actually worth, and certainly less than the balance outstanding on their mortgage. This is generally accepted if a quick sale is needed to avoid foreclosure.
6. Purchasing vacation rentals, which is a great way of earning a passive income while at the same time having a piece of property that you can use yourself if you are on vacation. By working with a good property manager, there is not much you need to do to earn your income.
7. Through hard money lending, which you will probably only be able to do once you have been involved in this field for quite some time. When you first start out, you will look for hard money lenders to help you get on the ladder. But as you continue, and if you are successful, you can become a hard money lender yourself. There is a lot of profit to be made in these loans, and the risks are very low.
8. Investing in commercial real estate, which you will probably only be able to do once you are truly established.

Hard Money Lenders Can Help, But You Do Have To Be Wary

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A lot of people are interested in using hard money lenders if they want to get a quick and easy loan for a property, particularly if it is for an investment. While these types of lenders offer fantastic opportunities, particularly for fix and flip investors, it is also important to be aware of the pros and cons of hard money loans. Unfortunately, there have been situations in which people have lost thousands by turning to these lenders.

Hard Money Loans for Investment Properties Only and Not for Homes

Hard money lenders are only interested in the value of a property, not the individual’s debt to income ratio. It is also for this reason that these loans should not be used for family homes, but only for investment properties. Unfortunately, a lot of families see these loans as a way to get on the housing ladder, in the hopes of then being able to find a better loan by the time they have to pay it off. Because there is no guarantee that this will actually happen, you should never consider a hard money solution as an alternative to a regular mortgage.

Need to Avoid Loan Sharks

In fact, even those who use a hard money lender for an investment property must put measures in place to avoid loan sharks.

Loan sharks make their money by charging very high-interest rates, which are often against usury laws. Loan sharks might use threats of violence to encourage borrowers to repay the debt. All loan sharks are hard money lenders but, fortunately, not all hard money lenders are loan sharks.

Loan sharks are a significant concern for people looking for hard money loans. At the same time, con artists presenting as lenders are a concern as well. These con artists will convince people to pay them for an administrative service, and then don’t come up with any money in return. What these people prey on are people who have fallen on hard times and are desperate for money. This is not necessarily to buy a new property either. It could be, for instance, to renovate, to pay the mortgage, or to pay for any other bill. People who have bad credit often have financial difficulties anyway, which means that they are often in even greater need for some loan to tide them over or to pay for unexpected expenses.

Not all hard money loans are a bad idea, however. In fact, in a sense, a credit card is a hard money loan, and many of us have those. There are many different types of hard money loans out there, and they serve very important purposes. However, as a consumer, you must be responsible and consider what you are borrowing, why, and who from. This is about protecting yourself, something you should do with any kind of financial product. So what are some of the different types of genuine hard money loans that you may want to consider?

1. The Mortgage Refinancing Loan

When you refinance your mortgage, you essentially take out a second loan, which you use to improve the overall value of your property. This means that, for a short period of time, you will have a different loan to value ratio for your property, which is something that many lenders do not recommend. This, in turn, is exactly what people go to hard money lenders, because they use the money for a short period of time to complete the refurbishments of their property, after which they take out a new mortgage. It is important, however, to only do this if it will save money in the long run.

Refinancing can be a great financial move if it reduces your mortgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting debt under control. Before you refinance, take a careful look at your financial situation.

2. The Equity Loan

The second type of hard money loan is the equity loan.

A home equity loan – or HEL – is a loan in which a borrower uses the equity of their house as collateral. These loans allow you to borrow a large lump sum amount based on the value of your home, which is determined by an appraiser, and your current equity.

Equity loans, again, are very tricky financial constructions. It also means that you lose out on the equity in your property, at least for a certain period of time. Hence, you need to think about whether or not this really is the best idea. It is tempting to take one out just because it gives you cash in your pocket with which you can do what you want, but there are significant risks associated with it as well.

3. The Bridge Loan

Last but not least, there is the bridge or bridging loan, another complex financial construction.

Bridging loans are short-term finance typically used when there is a gap between the sale and completion dates in a chain. They are also used by people buying at auction, or those who plan to own a home only for a short time – for instance, if they are buying to renovate and then sell on.

These are the most common forms of hard money loans, and perhaps the safest as well. It is with a bridge loan that someone can purchase a property if they have not sold their own yet, for instance. They also are the perfect solution for fixers and flippers. A bridge loan is designed to be only held for a short period of time, which is precisely what hard money loans were intended to do.

We continue to live in difficult financial times, which means people look for various alternatives to find a way to get money together. While hard money loans enable people to do this, they have a specific purpose, which is to help people get money together for real estate. While it may be tempting to use them for other things, you should avoid this for your own protection.

Why Hard Money Lenders Are Not As Scary As They Appear

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Many people think of hard money lenders as loan sharks, which are those types of people who will break your kneecap if you don’t pay on time. In reality, however, these lenders are legitimate individuals or organizations that help people get hold of home loans as quickly as possible. Very simply put, a hard money lender is a private rather than a traditional lender, meaning that this is not a bank.

Why Opt for Hard Money Loans

Many people wonder why anyone would go to a hard money lender instead of a bank. The answer to that is “convenience”. A hard money loan may have huge interest rates and run over short periods of time only, but they can be arranged within days and they are quite easy to get. This has made them popular with specific demographics.

Who Uses Hard Money Loans?

1. Fix and flippers love these loans, because they only hold properties for short periods of time, so a lengthy mortgage is not suitable to them.

If you add up all the time it takes to complete a fix and flip, you quickly arrive to a time frame that most people do not expect or plan for. Total completion time: 20 weeks (4 to 5 months).

2. Property builders, who use these loans to purchase land, build a property, and sell it. Again, this doesn’t take a lot of time.

3. Investors, such as real estate investors who see an amazing deal that simply cannot wait. Because a hard money loan can be organized in days, due to the fact that these lenders are essentially real estate investors themselves, it is the perfect solution for urgent deals.

4. People with bad credit who have a deposit ready. They may have had a recent default, foreclosure, or bankruptcy on their file. If they have cash and have spotted a property of value, then they may be considered for a hard money loan.

Bad Credit and Hard Money Loans

Technically, hard money loans were not designed for people who want to buy a primary residence. However, with so many people having bad credit or otherwise not meeting the standards set by regular lenders, they have become a viable option to consider. Essentially, people use them as a bridge loan, meaning that they take the hard money to buy their home, which is usually a two year loan. During this time, they rebuild their credit, meaning they will be able to apply for a conventional mortgage once the time is up.

Getting a Hard Money Loan

It is important that you check directories of hard money lenders so that you find the one that is right for you. This also means being aware of how these loans work. Usually, you will only be able to receive a loan for around six months to a year, although some hard money lenders now extend this to five years. You can also expect to pay substantial interest rates, usually between 12% and 21%. Furthermore, you usually have to pay for “points” or other types of fees.

Hard money lenders charge other fees besides the interest on the loan. The fees are a source of income for investors of hard money loans and it is important you understand the sources of income to negotiate the best rate and terms for your deal.

You also have to have a substantial deposit available yourself in order to qualify for a hard money loan. It is rare for lenders to even consider you unless you have at least 25% of the value in a deposit. The loan-to-value (LTV) rate is often as low as 60%, meaning you may have to save up for a 40% deposit.

California’s Barrett Financial Group Now Offers Hard Money Loans

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In California, both the commercial and residential real estate markets are booming. As a result, people are looking for new methods to finance real estate purchases. It has recently been announced that Barrett Financial Group has developed a number of hard money loans for a range of different types of properties.

Extremely trustworthy, reliable, fast and experienced hard money lenders in California. We provide local hard money for your next new construction project, commercial property acquisition, fix and flip, rehab or buy and hold. Give us a call today to submit your request for your next hard money loan.

Barrett Financial Group will be offering hard money loans for non-owner occupied and residential occupied properties, rehab loans, fix and flips, trustee sales, short sales, cash out refinances, REO finances, commercial loans, business investment properties, land loans, and construction loans. These products will also be available across the state, in all of its major markets.

Barrett Financial Group is a private funder that has many years of experience in every element of real estate lending. This ranges from fix and flip loans to refinancing to bridge loans.

Bridge loans are temporary loans that bridge the gap between the sales price of a new home and a home buyer’s new mortgage, in the event the buyer’s home has not yet sold. The bridge loan is secured to the buyer’s existing home. The funds from the bridge loan are then used as a down payment for the move-up home.

The group focuses strongly on the needs of customers, ensuring that they are efficiently and rapidly provided with the money they need for their real estate projects. Of particular importance is that Barrett Financial Group is very well-known and trusted in the industry.

Barrett Financial Group is outstanding. I have used Trevor and his team twice in the last two years. They are fast, friendly and focused on getting you a great loan/rate. Each time I have found Trevor to be very attentive, he’s always available, approachable and someone you can trust. I highly recommend Barrett Financial.

The organization has built its reputation in Phoenix, AZ, where their hard money lending programs have long been established. For a long time, the company has wanted to expand into California, particularly since they have experienced significant growth over the past three years. The goal for the organization is to assist people who have ambitious real estate projects, ensuring they can turn those into realities. The group works in partnership with a number of highly reputable partners, and they always look for other investment sources to join them.

Naturally, the organization does have acceptance criteria for those who want to apply for a hard money loan. That said, they have numerous criteria that people could fall back on, making their acceptance rate substantially higher than that of many other loans of their kind. The criteria include the ability to provide property collateral, insurability, and credit history. However, as it is a hard money loan, the latter criteria is of the least importance. Indeed, traditional lenders are failing borrowers by placing so much importance on credit score alone.

Traditional lenders provide funding for the majority of financed real estate transactions out there. They loan up to 80% of the home’s purchase price, and with certain types of loans, well over 90%. When it comes to hard money lenders, however, they follow different criteria for underwriting loans. Sure, they do take credit score into consideration, but they also look at a number of other factors.

Essentially, the Barrett Financial Group believes that if people have a poor credit score, the should not be excluded from receiving financing or loans, particularly for businesses or real estate purposes. This is a mentality that they have instilled in all specialists that work for them. Together, they ensure that clients and customers are able to build their own knowledge and find the best loan programs for their customers.

California has welcomed the news that Barrett Financial Group will be offering these loans, not in the least because there is now a flourishing fix and flip market.

California’s real estate markets have performed impressively in 2016. Home sales in most markets are robust and home selling prices continue to rise. California’s performance shows the resiliency of its huge economy, which has regained over 2.2 million jobs since 2010, which more than replaces the 1.3 million jobs lost during the Great Recession. Tight housing inventories, strong buyer demand, and appreciating home prices make California an attractive market for fix-and-flip investing. Here is a closer look at California markets that offer outstanding investment opportunities.

Fix and flip properties are notoriously difficult to receive a normal mortgage on, simply because the intention is to only own them for a short period of time. Most traditional mortgage lenders will only provide loans for at least ten years. With great difficulty, people may be able to find a five-year mortgage, but the early repayment penalties are very high on these. Hard money loans, by contrast, are designed to only be in place for a short period of time, usually for no more than two years, which makes them ideal for fix and flip properties.

Barrett Financial Group brings with it substantial years of experience. They are a trusted partner both for those looking for funding opportunities and loans for fix and flip or other real estate projects, but equally for those who have investments to make and want to ensure that this is managed the right way. It is expected, therefore, that the group will do exceptionally well in this state, particularly if their success in Arizona is anything to go by. The overall impact this will have on the real estate market in California will also be very interesting to keep track up, as it could potentially give more people the opportunity to fix and flip and, eventually, to invest in and become landlords or property managers, to name but a few.

Getting a Hard Money Loan with a Bad Credit Standing

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One of the questions people often ask about hard money lending is whether or not it is possible to get such a loan if the applicant has bad credit. Credit standing certainly does play a role in determining whether or not someone can be approved for such a loan, but it is certainly not the only thing, nor is it the thing that matters most to lenders. Instead, a hard money loan is a type of investment, and the providers of these loans are interested in various other issues first.

Traditional Lenders Continue to Fail the Market

Almost all real estate transactions are funded by traditional lenders. Those will always need a down payment, usually of around 20%.

The amount of minimum down payment required will depend on the type of loan that you choose. Each mortgage loan type carries its own guidelines. Gone are the days of 80 / 20 combo loans and liar loans, also known as stated income loans. Today, underwriters closely scrutinize a borrower’s ability to repay the loan. They don’t want borrowers to overextend themselves and end up in foreclosure or a short sale down the road.

That being said, there are numerous other loan constructions out there. VA mortgages, for instance, are available for veterans and no deposit is required at all. However, if an investor wants to purchase a property and get a mortgage for this, they will face three significant problems first:

  1. A traditional lender looks solely at how much a property is being sold for, which is often not its actual value.
  2. A traditional lender will not agree to provide a mortgage for properties that are in disrepair, as they would need to invest in improvements should they decide to liquidate the property.
  3. A traditional lender places the focus on the credit score of the applicant. This means that if someone has perfect credit, and happens to come across an undervalued property that is also in perfect condition, he or she will be able to flip it with ease. In reality, however, finding that applicant and that property is like finding a needle in a haystack.

The housing bubble collapse of 2008 clearly still has repercussions.

Investors and consumers are likely to live with the repercussions of the financial crisis for years to come. In many countries, including the U.S., consumers remain heavily leveraged and many homeowners are “underwater,” owing more than their homes are worth. As consumers continue to deleverage and repair their finances, their purchasing patterns may be permanently altered.

Acceptance Criteria for Hard Money Loans

Hard money lenders are completely different from traditional lenders. They have their own criteria that will determine whether or not they agree to underwrite a loan. One of those criteria is the credit score, but that is certainly not the only one, nor is it the deciding factor. Rather, hard money lenders are interested in things such as:

  1. How much a property will be worth after it has been repaired.
  2.  Whether the applicant already has experience in investing in real estate.
  3. Whether the applicant is happy to invest money into the property as well.

Naturally, someone with good credit will be more likely to be accepted for a hard money loan. However, someone with bad credit is not automatically dismissed as a possibility either. For a hard money lender, what matters is the bigger picture, and not a singular metric image, which is what traditional lenders tend to look for.

Tips for Getting Approved for a Hard Money Loan If You Have Bad Credit

If you have bad credit, it is important that you think of ways to increase your chances of being approved for your hard money loans. There are three key things that you should focus on:

1. Make sure you have been fully thorough in your due diligence. The greatest priority for the hard money lenders, is that there is an investment opportunity. You are their investment, so you need to make sure that you have a proposition that sells yourself. This means performing due diligence right from the start.

The due diligence period in a real estate means embarking on the necessary steps to perform calculations, review documents, research the company and essentially do your homework for the investment BEFORE you actually make the commitment.

You need to be able to show, in your proposition, that you have covered every angle. This also means being able to explain each element to the lender.

2. Make sure that you can explain why you have bad credit. Credit history is important to a certain degree, but lenders are far more understanding of the fact that things can go wrong in your personal finances. If there are any extenuating circumstances that caused you to have these problems, and you can explain that there is no reason for those problems to return, then it is likely that the lender will be very lenient and understanding.

3. Make sure that you give the lender peace of mind. Hard money lenders are private investors so you need to approach them in that manner, showing them that you are serious. Contribute as much money as you possible can yourself, have an excellent exit strategy in place, demonstrate your ability to make the necessary monthly payments and the final payment, and so on.

Regardless of your credit score, the above three steps should help you to have a greater chance at getting approved for a hard money loan. What these lenders want to see is that their money will be returned to them, with interest. That means having a solid, well-researched proposition in place.

As you can see, it is possible to receive a hard money loan even if you have bad credit. This does not mean that your credit score doesn’t matter, but rather that it doesn’t matter as much as what it does to a traditional lender. You are far more likely to be able to receive a hard money loan if you have a solid investment proposition in place that is viable and likely to succeed, regardless of your credit history.

Hard Money Lenders are Here to Help

Hard Money Private Lenders Are Here To Help

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A hard money private lender will give you a loan that many inflexible lending institutions won’t approve. If a hard money loan is the best way for you to finance a project, start a business, buy a house, or a host of other things, this is for you. Read on to discover how hard money lenders are here to help you.

Why Hard Money Lenders Help Others

Private hard money lenders are real estate investors who want to fund certain kinds of purchases. These borrowers are often real estate flippers, small business owners, and people trying to complete a project. The liquidity of private hard money lenders is their best asset. It’s the private lender’s liquidity that allows them to diversify their portfolios by lending money to unique business opportunities.

There are even crowdfunding companies, like Groundfloor Finance out of Atlanta, that are joining the movement. Groundfloor Finance combines the funds offered by smaller investors in the industry. In 2019, the average amount of hard money loans combined came to $12 million a month.

Jeffrey Tesch manages another hard lender company out of Connecticut called RCN Capital. “RCN should loan out $500 million this year. Business is better than ever, but it’s in the workforce segment,” he says.

The Concrete Tangibles in Hard Money Private Lenders

In the simplest definition, private hard money lenders are people who have large amounts of money to invest. These lenders have the intent to loan money to people with ascertainable financial projects. Hard money lenders will decide on your loan application in as little as one day, although many can take seven to ten days. That’s far less than traditional financial institutions can offer.

The hard money private lender is interested in projects, businesses, or people with solid plans and an attainable goal. They do require collateral, which can be anything from your car or boat to your home or property. They will look at your credit and job history, but they’re more interested in your collateral for the loan.

Hard Money Private Lender: Follow the Rules

The best hard money private lenders want to build a long-term relationship with you. They’re somewhat flexible with people they know they can trust. If you establish a good relationship with them, they’re more likely to partner with you on your next project or business idea.

If you used your home as hard collateral, private money lenders are bound by the Dodd-Frank Wall Street Reform and Consumer Protection Act law. This law encourages hard money private lenders to extend loans to borrowers in real estate.

The Dodd-Frank law regulates what most private lenders can loan you with your home as collateral. The hard money private lender can loan you up to 70% of the fair market value of your home. On average in the U.S., Americans have over $15.2 trillion in home equity. That can make for some great hard money private loans.

Example

Typically, the hard money lender will give you a loan of up to 70% ARV (after repaired value) of your home. For example, say you have a home worth $45,000 that needs $20,000 in repairs. You expect the home to be worth $100,000 after the repairs are complete. That means, the hard money loan may be for up to 70 percent of $100,000, or $70.000. The $70,000 covers your house and repairs.

If you don’t pay back the loan on time, the hard money private lender has the option of taking your property and selling it. It’s prudent to be honest with your hard money lender. Let them know the true value of your property or other collateral you’re using. Give the private lender a financial or business plan on what you want to do, and how you’re going to do it. Let them know how you’re going to come up with the rest of the money you may need.

Final Thoughts

No matter the amount of the private hard money loan, have a lawyer review the terms for peace of mind. If you’re comfortable with the loan terms and are confident that you can pay it back on time, a hard money loan may be right for you.

Sources

https://www.bloomberg.com/news/articles/2019-06-12/high-interest-lenders-up-40-even-as-home-flipping-trend-weakens

https://www.congress.gov/bill/111th-congress/house-bill/4173

https://fisher.osu.edu/academic-departments/department-finance/dice-center/working-papers

Bad Credit Not A Barrier Towards Getting A Hard Money Loan

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A lot of people think that, if they have bad credit, there are no finance options available to them at all anymore. However, it is interesting to note that hard money loans are less interested in credit scores and more interested in a number of other things. While there certainly are significant disadvantages to taking out a hard money loan, the fact that they are available for people with bad credit makes them very interesting.

The Problem with Institutional Lenders

A lot of people think that the world of mortgages is dominated by banks and other forms of traditional and institutional lenders. In reality, this is no longer the case as non-traditional lenders begin to take over the financial system.

In 2011, 50 percent of all new mortgage money was loaned by the three biggest banks in the United States. At the same time, six of the top 10 largest lenders by volume were non-banks.

Traditional lenders usually lend between 80% and 90% of the value of a property. However:

They only look at a property’s purchase price, not its potential.

They don’t provide mortgages for distressed or vacant properties.

They care mainly about the credit score of the applicant, rather than the money to be made on the property.

The Hard Money Lender Experience

Hard money lenders also care about credit score, but not much. Their underwriting process is very different, however.

Hard money lenders are primarily concerned with the amount of equity the borrower has invested in the property that will be used as collateral. They are less concerned with the borrower’s credit rating. Issues on a borrower’s record such as a foreclosure or short sale can be overlooked if the borrower has the capital to pay the interest on the loan.

What a private lender is interested in is what a property will be worth after repairs. They are also more interested in whether a borrower has any real estate investing experience. Finally, they want to see people who are happy to put their own money into the pot. Naturally, a good credit rating helps in all of that, but it is not the be all and end all of the process.

How to Get a Hard Money Loan Approved if You Have Bad Credit

If you do have bad credit, then the following tips may be of benefit to you in order to increase your chances of approval:

  1. Focus on due diligence. Make sure that you write a stellar proposition that they simply cannot say no to, by covering every angle.
  2. Provide an explanation as to why your credit score is less than perfect. Explain the things that have gone wrong in the past and what you have done to ameliorate the situation.
  3. Try to give the private lender peace of mind. You need to showcase that it is also in your interest to have a successful project. To prove that you believe in your proposal, you should put as much of your own money towards it as you can. You also need to write an exit strategy and explain how you intend to repay the loan.

As you can see, it is possible to get a hard money loan even if you have bad credit. While that doesn’t mean your credit score doesn’t matter, it is more a case of other things being far more important. That is one of the main things that set private lenders apart from traditional institutions. A hard money lender wants to invest in projects that look profitable and likely to succeed. Hence, they will look at each proposal individually, rather than having a tick box exercise like traditional lenders generally do.

Invest Money in You

Private Money Lenders Want To Invest Money In You

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Do you want to flip houses or invest in real estate? If you don’t have the money, getting a loan can be the next best thing. However, traditional loans from banks and credit unions often take too long and require good credit. Consider private money lenders if you are serious about starting your new business in real estate. Read on to learn more about how these lenders can help you and why lenders want to invest money in you.

Who Are Private Money Lenders?

Who are private money lenders? According to Financing Strategies For Real Estate Investments, a private money lender is “a noninstitutional (non-bank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction.” Most private money lenders come from strangers who are interested in investing their money in real estate.
However, friends and family are another alternative lender to consider. If your friends and family have extra money to help you, then it can be convenient to ask them for the loan. They know they can trust you, so you don’t need good credit to get a loan from them.
You can also ask co-workers or other people you have connections with for a loan. However, some people usually have to resort to finding private money lenders online.

Why Lenders Want to Invest Money in You

Why do private money lenders want to invest money in you? Most of them want to do something with the vast amount of money they already have. However, some want to invest so they have enough after retirement. As stated by Financing Strategies For Real Estate Investments, a study showed about 22% of American workers have at least $100,000 saved up for their retirement. Not everyone who retires will leave the money in the bank where it won’t do much good.
Instead, those in retirement, or close to it, want to invest their money to earn more for their future. They commonly profit from the interest they make on the loans they extend to borrowers for flipping houses or investing in real estate. For that reason, there’s always money out there for you to borrow for your new real estate business. All you have to do is look for people willing to invest in your idea.

Getting an Approval

You don’t need good credit to get a private money loan. That’s because these lenders have less restrictive borrowing parameters than traditional lenders. Instead, they look for an excellent plan for the money they’re investing. Creating a mutually beneficial plan for profit will only make a stronger case for them to approve you.
You should also prepare for the unexpected when you are flipping houses or investing in real estate. You might find asbestos in the attic or too much mold in a wall that will cost you more money than you planned on spending. That can create problems if you don’t have a backup plan for how you will pay for it.
For example, you may not be able to stay on schedule to sell. Or worse, you risk losing the property to the lender altogether when you can’t repay the loan. However, if you have a backup plan, then lenders are often more willing to approve you for a loan. That’s because backup plans give the lender faith that you’ll be able to repay the loan on time, despite these kinds of surprises.

The Downside of Using Private Money Lenders

There are several reasons why using private money lending can be a good thing for getting your business up and running. However, always consider the pitfalls of using these lenders before applying for a loan.
Getting a loan from family and friends can be another option for you. But should you do it? Hiccups in repaying those closest to you can deteriorate otherwise healthy relationships, especially when payments are late or behind.
You will also have to deal with higher interest rates with private money loans than you would with traditional ones. So, consider whether building your real estate business is worth the extra money you have to pay these lenders.
If you want a private money lender to invest in you, then research online to find the right one right for you. Get a few offers before deciding on one, so that you know you’re choosing the best loan available to you. Lenders want to invest money in you, so get started today and make your dream business a reality!

Sources

http://ideaexchange.uakron.edu/cgi/viewcontent.cgi?article=1445&context=honors_research_projects