Hard money loans are very appealing to flippers and rehabbers. They offer a short term, non-traditional way to buy a house or property. As appealing as that sounds; there are good and bad things about obtaining a hard money loan.
Here are a few tips to help you decide if it is something you should consider for your next property.
Hard money loans offer the advantage of having faster access to funds. Most hard money loans are processed quickly, some charlotte hard money lenders will approve you the same day. Making funds available in just a few days instead of the weeks or months it takes conventional lenders.
Charlotte hard money lenders focus on the value of the property. Meaning they are perfect for flippers or rehabbers.
If you’re a rehabber and your credit score isn’t where a conventional bank would like it. Hard money loans may be the perfect option for you.
Don’t fret if you are looking into a multi-family property or one that’s commercial. Hard money loans are designed to be versatile.
What is a hard money loan?
A hard money loan is a way for people looking to fix and flip houses. An alternative way to obtain the property without going through traditional lenders.
Were traditional lenders interested in your credit score, and about their financial gain from the investment. Hard money lenders are more interested in what the property will sell for, once rehabbed. They are a quick funding option, perfect for someone looking to get it and out.
Short Terms and Higher Rates
They have shorter terms than traditional mortgage lenders. Usually spanning 1-3 years. Hard money lenders figure the borrower is looking to renovate and flip the house. All of this before the loan is due to be paid off. Meaning, they are more interested in what the house sells for, then what they are making off the top.
Don’t go into a hard money loan thinking you’ll be able to get the fund without paying a penny. Hard money lenders require you to pay the interest. The principal is paid at the end of the loan terms.
Hard money loans, because of their terms, carry a higher interest rate. Typically, anywhere from 8-16%. With the amount borrowed ranging between $50,000 – $1,000,000 plus.
How much will they lend?
The specific characteristics of the property. Plus the financial qualifications of the borrow. Will affect how much financing the hard money lender will offer. Generally speaking, hard money lenders will keep their investment at 65-70% of the property’s estimated ARV. This is the investor’s security net. Let’s say the borrower defaults on the loan. The hard money lenders have to foreclose and sell the property repaying the loan.
If you are a first-time rehabber the amount the lender will offer will be considerably less. The financial risk is higher if the borrower hasn’t rehabbed before. They may also ask for a personal guarantee. The collateral can include personal assets like the borrower’s house.
Common Mistakes for Rehabbers
Hard money lenders ask that the borrower hold a good amount of financial risk. Asking them to commit to 30% of the capital. This is for the security of their business.
Finding a Reputable Hard Money Lender?
The best way to find recommendations for a hard money lender is to ask contractors or real estate brokers. Before you apply for a loan, do your research on the company. Make sure they fit your needs.
Before you know it will be on your way to renovations and flipping.
