Hard money loan-to-value ratios are kept pretty low at 50-70%. Are you thinking of getting hard money but not sure how to get one or where to look?
In this article, you’ll receive a complete guide about hard money loans and in what situations they’re best. Read to learn about hard money lenders near me.
1. What Is a Hard Money Loan
A hard money loan is a short-term loan that’s secured by real estate. Instead of conventional lenders like banks or credit unions, they’re funded by private investors. They usually last about 12 months but can last for 2-5 years.
This loan will require a payment of interest plus principal or just interest. There will be a balloon payment at the end of the loan. The amount the borrowers receive depends on the value of the subject property.
The property could already be owned by the borrower and used as collateral or property the borrowing is obtaining. Hard money lenders focus more on the property’s value than the borrower’s credit. They might still factor in a borrower’s credit as well.
If a borrower isn’t able to obtain a conventional loan due to a short sale or recent foreclosure, they can receive a hard money loan if they have equity in the property.
2. Property Types
Property can be defined as land, single-family homes, multi-family homes, commercial, or industrial. Some hard money lenders might only specialize in one form of property. So, for example, if you’re looking to use land as collateral, they might not do that property if they don’t specialize in it.
You’ll want to ask the hard money lenders what property types they’re most comfortable with. Most hard money lenders won’t lend on owner-occupied residential properties because of extra regulations.
Some will do this type of property, so it’s important to speak with your lender and see what they’re comfortable doing.
3. Who Should Use Hard Money Loans
Many real estate investors go with hard money loans mainly because they’re much quicker to process than a bank loan. The hard money loan normally only takes about a day or two and sometimes is done on the same day.
When you’re bidding on a local property as a real estate investor, you’ll want a quicker loan that will get a seller’s attention.
If you’ve been rejected by conventional banks for a loan, many then apply for hard money loans. Also, when applying for conventional loans, they need to see income history. If you started a new job, a bank might reject you even if you make a great salary.
4. Deals for Hard Money Loans
If you’re looking for a quicker loan or don’t qualify for a bank loan, they’re ideal for:
- Land loans
- Fix and flips
- If you have credit issues
- Construction loans
- When real estate investors need a loan fast
- Personal loans
Speak with your local lender and see your options as far as hard money loans.
5. Interest Rates
Interest rates and points vary for each lender, but if you’re looking in California, the good news is the interest rates tend to be lower. Keep in mind though that interest rates on hard money loans will be higher than conventional loans since there’s more risk involved for the lender.
6. Hard Money Lenders near Me
You can find hard money loans near you by searching on google and typing in hard money lenders near me. You can also attend local Real Estate Investor Clubs. These clubs normally have hard money lenders hoping to network with investors who are looking for loans.
7. Pros of Hard Money
One of the pros of this type of loan is you can avoid banking limitations. Banks are obligated to their shareholders to make good investments and give out loans that have a good chance of having a high return.
Because of that, many banks won’t do loans for flips and renovations. Hard money loans have fewer requirements, so you’re more likely to be approved. You’re less likely to deal with the stress of being denied and wondering what you’ll do next.
Before obtaining a hard money loan, speak with your lender and understand the process as much as possible. Determine if hard money loans are right for you in meeting your goals and needs.
8. Value Ratios
The loan amount the borrower receives from the lender is determined by the ratio of the loan amount divided by the value of the property. This is known as the loan-to-value ratio (LTV). Some lenders will lend based on the after repair value (ARV).
The ARV is the estimated value of the property after the borrower has improved the property. This is considered a riskier loan option by lenders because the capital put in by lenders increases and the capital invested by the borrower decreases.
Some lenders will give a high percentage of the ARV and help pay for rehab costs. Borrowers might think this sounds great, but the interest will be much higher with this type of loan.
Lenders will look at the amount of equity in the property used as collateral. If you have the capital to pay the rest of the loan, lenders won’t pay too much attention to it being foreclosed or a short sale. Then the borrower will show the lender how they plan on paying off the loan.
Often, this is when they improve a property and then sell it.
Hard money loans have several pros compared to a traditional loan—with the largest of all being the speed and approval process. Are you ready to apply for a hard money loan? If you’re looking for hard money lenders near me, contact us today and we can make your dreams a reality.