1. What’s the Purpose of a Hard Money Loan?
Hard money loans are a good option for those who need a short-term loan to complete a real estate project. Rather than heading to a bank or other conventional lender, you can receive the funds that you need from an individual or a private lender who loans you the money based on the property that will serve as collateral on the deal, l and the qualifications that the individual(s) guaranteeing the loan need to meet are substantially easier than those of a bank or conventional lender.
One of the main reasons why hard money loans are so popular is because you can close on this type of loan in a shorter amount of time, giving you an opportunity to stay competitive on a property that’s receiving multiple offers.
2. When Is It a Good Idea to Get a Hard Money Loan?
If you’re house hunting for a property that will serve as your primary residence, and you have a strong history of income, along with good credit and assets to your name, you don’t need a hard loan because you’re likely to get a conventional loan without a problem.
On the other hand, if you need the money fast, and you can’t wait for a traditional lender to move through the time-consuming process of giving you a loan, hard loans might be right for you. And these loans are also appropriate for anyone who has a history of credit problems, or who has difficulty attaining a traditional loan for a variety of reasons. However, not all hard money lenders provide loans to owner occupants.
Real estate investors, those taking out construction or land loans, and professionals who are planning on doing a fix and flip can do well with a short-term option like a hard money loan, because they can get the money that they need right away to move forward with their project. Additionally, hard money lenders will lend on properties that are not considered habitable by banks or conventional lenders. Furthermore, the income qualifications and other qualifications required of the borrower are typically easier with a hard money loan.
3. How Quickly Can You Receive the Funds You Need?
While it might take upwards of 45 days for a traditional lender to fund a loan, when you apply for a hard loan, it can be funded much more quickly—we’re talking in just a few days.
It might only take a couple of days for your application to be completed and processed. Plus, you might even get approved for the money you need on the same day that you apply. Banks, on the other hand, won’t work nearly as quickly. So, again, when you need to move fast on a real estate deal, it’s tough to beat the speed of a hard money loan.
4. What’s the Application Process Like?
As you move through the application process to get this type of loan, you’ll be required to provide a variety of documents. Generally, you’ll need to show an appraisal, along with the Title and insurance, as a few examples. A loan application or financial statement and some basic income and liquidity documents may be required, depending on the lender.
The sooner you provide the necessary materials for your application, the better, as once all of the documents have been received and processed, you might be able to get your money in as little as three days.
5. What Are Interest Rates on Hard Money Loans Like?
Like conventional loans, the interest rate that you’ll get on a hard loan will depend on the lender that you end up using, so getting several quotes to compare your options is a great idea.
Generally, though, these loans will come with higher interest rates, simply because they are riskier for the lender.
6. Are There Any Other Costs Involved?
In addition to interest, lenders will also charge points on hard loans, and these will vary from one lender to the next. They might, for example, range anywhere from 2 to 4. Or, you may pay a higher interest rate in exchange for lower points..
Also, be sure to ask about additional fees, such as underwriting fees and processing fees. And don’t forget about closing costs, too. To compare lender to lender, you need this information.
7. What Are the Loan to Value Ratios?
How much money will the lender be willing to give you? Well, they’ll take the value of your property into consideration.
Some lenders might give you 70% or more of the property’s value as it stands currently. However, there are also hard lenders who may calculate how much they’ll give you based on the ARV, which is the “after repair value” of your property, instead. Others provide up to 90% of purchase price plus 90% of repairs, subject to the loan not exceeding 75% of the after repair value appraisal.
8. What Questions Should You Ask a Hard Money Lender?
Choosing the right lender is always important, regardless of what type of loan you’re taking out. When it comes to hard money lenders, there are many questions that you can ask in order to gauge their trustworthiness and expertise.
For example, you can ask a lender about their years of experience, and you can also find out if they’ll be brokering the loan to another lender. And you can even ask for testimonials and reviews from past customers.
Still Have Questions About Hard Money Loans? We Can Help!
Overall, hard loans can be extremely helpful in situations when you wouldn’t qualify for a conventional loan, when you need a shorter term loan, and when you need the money fast.
If you still have questions about hard loans, or you want to ask a lending professional about the other options that are available for your unique situation and needs, contact us today. We can help you get the funding you need to complete your next big project, whether you require a fix and flip loan, a fix and hold loan, or a construction loan. When you want to avoid the high costs associated with traditional hard money loans, there are alternative options, and we can point you in the right direction.