Hard money loans are loans secured to buy and renovate properties. These loans are usually short-term loans with a high interest rate. They are also faster to obtain compared to traditional loans. In cases where you failed to qualify for a loan from other places including banks, you can rely on hard money loans. Even though there are many hard money lenders, not all are reliable. If you are looking for quick loans, you have come to the right place.
We will connect you to lenders who offer hard money loans at a faster rate. With these loans, you do not have to worry about your credit scores. Even if you have bad credit, you can still get this type of loan. Our lenders focus on the mortgage you are offering. They secure the loan with the mortgage. Hence they do some investigation on the mortgage.
That mortgage will be the collateral, and if you fail to pay for the loan, they will get their money back by selling the property. In this case, the value of the property is paramount to the loan amount our lenders may offer. You can get a high amount if the value of your property is high. Qualifying for this loan is easy.
There are two stages during the application process – pre-qualification stage and funding stage. The pre-qualification process can be done online. The borrower will complete a short application form, and he or she is likely to receive a reply in minutes. You should receive an approval notification to proceed with the application. The borrower will receive general information about the loan through this process.
The next stage requires that the lender submit some other information to help the lender compile more information concerning the loan. The lender will discuss the fees, rates, and terms at this stage. Some documents the lender may request to include purchase contracts, contractor bids, list of past projects, appraisals, and the scope of the renovation work.
The basic rules for accessing loans still apply for this type of loan. You need to be at least 18 years of age to obtain this loan. You should also have a valid ID card and be a legal citizen of the United States. You would also be asked to provide proof of a steady source of income. This proof is vital because our lenders want to know if you can pay back the loan. They also request for an active bank account. This account will enable the lender to disburse the loan to you.
You also need to provide your bank statements and the list of projects you have worked on. In this case, the lender wants to know if your previous projects were successful. You also have to provide the purchase contract. The lender also needs to see the contractor bid and scope of work. Usually, you need a credit score of at least 550 to qualify for this loan.
Should you go for hard money loans because it is easy to obtain? This type of loan is right for two kinds of investors; Fix-and-Flippers and Buy-and-Hold investors.
The Fix-and-Flippers investors are short term investors who buy a property, renovate it and sell it within one year. The borrowers can finance the cost of the purchase and repair of the house in the short term. The get the money from lenders in a process called the line of credit. The borrower pays back after selling the home. This period can take up to a year.
There are also buy-and-hold investors who take loans to renovate houses in poor conditions. They repair the house to use it as a mortgage for traditional loans. Traditional lenders would not approve loans when the house being used as a mortgage is in bad condition. The loan helps them to get a house that they use to obtain a long term traditional loan.
Some investors also obtain this loan to renovate properties and then rent them out to tenants.
The loan amount you can obtain as hard money may differ. It is always based on the value of the property, but the valuation of the property may vary. Some lenders grant loans based on the loan-to-value (LTV) ratio. The LTV ratio is the percentage of the value of the property that would be financed using the loan. Lenders set maximum LTV rates based on the loan type. Borrowers must consider this rate when budgeting.
The rate decides the maximum amount the borrower can get for his or her project. This cap helps lenders to budget for the financing project. Lenders do not set high loan-to-value ratio because they would be at high risk. They would have to finance a more substantial portion of the property. High LTV has some advantages for the borrower. The borrower can furnish the property and even invest in other projects than for low LTV. However, high LTV also has some drawbacks which include high monthly payments and high interest rates. The interest rate is high because the risk is too high. Some borrowers also prefer lower LTV because the interest is small and there is no private mortgage insurance.
Some lenders also base the loan amount on after rehab value (ARV). ARV is the estimated cost of the property after the renovation is completed. The ARV is calculated by first evaluating the current value of the property. The next step is to estimate the cost of the repairs and then find similar properties in the same location. The properties you would see should be identical to the what you expect after the completion of your property.
Lenders can also use ARV to estimate the maximum loan amount they can offer a borrower. ARV is beneficial to the borrower in the sense that it can help borrowers to determine the price at which they would sell the property after the renovation. It also helps them to set the profit margin. However, it is difficult to determine an accurate ARV.
Hard Money Loans also have some advantages over conventional loans when it comes to timelines. Conventional loans can take up to 45 days for processing and approval. Hard money loans, on the other hand, takes up to three minutes for the prequalification process. The real funding lasts from 10 to 15 days. The repayment period usually takes from one to three years.
These lenders offer loans irrespective of the condition of the property. This loan is unlike the conventional loans where they only finance mortgages in good conditions. Conventional loans would only grants loans when the mortgage is in good condition. Hard money loans, on the other hand, do not have this kind of restriction. Lenders use the LTV or the ARV to estimate the loan amount. Usually, they use the LTV when the house is in good condition and the ARV when the house is in a poor state.
The interest rate on this loan is higher than the interest rate on traditional loans. However, our lenders will inform you about the prevailing interest rate. The interest rate is between 7.5% and 12%. They would only proceed with the loan application when you agree with the interest rate. Our lenders would also inform you about the processing fees. You would know the total amount you would pay at the end of the period.
The borrower can repay this loan in installment. Usually, borrowers can schedule a due date monthly. You can set a reminder to make it easy for you to remember the date. Our lenders expect that you always pay before or on every due date. It is important not to default on your loan since lenders will consider that when you next apply for a loan.
Hard money loans are temporary financial solutions and should not be relied on as permanent solutions. They are temporary solutions because they are expensive. The borrower can pay at least %10 APR. Lenders base their approval decisions on the information you would provide as a borrower. Hence, it is vital to provide accurate information. It is also prudent to have a feasible plan before acquiring a hard money loan. It would be difficult to pay back if the project does not fall through, and that is why the project should be well thought over.
Since this loan is expensive, it is advisable that you go in for it only when you need it. The lenders would offer the loan to anyone who qualifies, but they cannot determine if you need it or not. Before appending your signature to indicate that your consent for the loan, you should be clear about the rates, terms, conditions, and privacy policies. You should ask the lender questions about anything you do not understand.