By Cruz Lena
Hard money is a quick and easy way to borrow without using traditional mortgage lenders. This kind of loan is based on the value of the property being purchased instead of your credit score. This asset-oriented loan financing involves the borrower receiving funds depending on the value of the real estate property. The lenders of these loans are independent investors or small financial institutions that fund investors depending on their property value without considering their income or credit score.
Here are other things you need to know about hard money loans;
Using hard money to invest in real estate is one of the most popular options for savvy investors.
Borrowers can use hard money loans from Houston lenders for many things, including paying off mortgages on properties. Hard money lenders come in handy when it comes to real estate investments, especially when it is your first time purchasing or rehabbing a property.
For example, if you were looking to purchase a property that needs repair, you could ask the lender for a hard money loan. You could also use hard money loans to invest in real estate across the globe.
Businesses use hard money loans to fund projects quickly without dealing with red tape as traditional mortgages involve.
You can use hard money for a single project or pay back another loan. Actually, hard money loans are funded by private companies rather than banks, which means they’re not regulated in the same way. While this makes it easier to get funding quickly, it also means you have to evaluate the risk carefully.
However, hard money is not for everyone, but many businesses find it’s an excellent way to fund projects without dealing with traditional bank red tape and delays.
Personal hard money loans can be funded within days instead of months like with traditional lenders.
Hard money loans are funded much faster than traditional loan products. Hard money lenders have a streamlined and easy-to-follow application process. In most cases, you can fill out an online loan application in less than 10 minutes, and they will provide you with a yes or no decision quickly after that. If your loan is approved, the funds can typically be distributed within days instead of months, as it would take with traditional lenders.
The quickness of the funding process is in stark contrast to what you will find when trying to get a traditional loan from sources such as banks or credit unions. These organisations’ small business loans typically require tedious applications with long forms and difficult questions about your financial history. Underwriters also need time to review your application and access your risk level before approving it for funding. On top of that, these institutions often require third-party appraisals or other similar processes, which extend the length of time needed even further.
How to Use Hard Money Loans
Hard money loans can be used for a variety of short-term transactions, including:
- Fix and flip properties
- Construction loans
- Purchasing an investment property
- Refinancing existing real estate debt
Tips for Choosing a Hard Money Lender
Here are tips to help you choose a suitable moneylender;
Reputation
Reputation and trust go a long way in all facets of the business. If a hard money lender has a reputation for being shady, you should probably keep looking. If they’ve got a good reputation in their industry, you should start there. This can either be through personal references or recommendations from professional business organizations. Check the Better Business Bureau to find out if they have any complaints on file or other indications of shady practices before you commit to working with them.
Terms of the loan
This is a crucial point to consider when choosing a hard money lender. How long are the terms of the loan? Do you want to invest in a property, fix it up and sell it in 3 months, or do you want to invest as a landlord and rent it out? If so, how long will this take? Consider all of these factors when deciding how long your loan should be.
Points Look at the points being charged on the loan
These are fees that you will have to pay upfront as soon as you sign for the loan. If possible, go for a hard money lender that charges zero points and only charges interest on the loan amount.
LTV
You will have to pay attention to the Loan-to-Value (LTV) that each hard money lender offers. The LTV represents the percentage of the value of the property that the lender will finance after you provide a down payment for buying it. Most lenders will offer an average of 65% LTV, but some may come close to 100%.
Prepayment penalty
This is a fee that you will pay if you pay off your loan early. Some lenders may not charge this fee, so it is worth asking about it before agreeing to anything. If there is no fee, you can pay off the loan without any penalties.
Interest rate
Lenders may have different rates, and they can vary depending on the type of loan and the amount of money that you are borrowing. It is wise to get quotes from several lenders so that you can compare these figures and choose the lowest one.
Hidden fees
Many lenders will try to hide additional fees from their borrowers in the fine print of their contracts, so be sure you read everything carefully before signing on the dotted line. Be sure whatever fees they charge are reasonable and don’t add up to more than what you’re borrowing in the first place. They should also be upfront with what the fees cover and not just say “processing fee” or whatever without explaining.
Loan servicing fees
Hard money lenders may charge fees every month as part of servicing your loan. Again, this may vary from one lender to the next, so it is worth getting clarification on these points before making any decisions. Your fees should be competitive with other lenders too.
Key Takeaway
A hard money loan is a short-term loan secured by real estate. The lenders are small groups or individuals giving money to investors in the real estate industry. The amount given depends primarily on the value of the investment property. They are less concerned about your credit and financial situation.
