Despite being popular among investors, there are many hard money loans frequently asked questions and common misconceptions that should be cleared up before you start investing in real estate.
The hard money loan definition is a short-term loan for individuals investing in real estate. These individuals generally flip the properties in order to make a profit. Hard money loans are also available for land purchases. Because the hard money loan process is significantly shorter than that of a traditional loan, investors use hard money to acquire investment properties quickly. Here are some common hard money loan misconceptions:
Hard money loans are a last resort.
There are many borrowers who prefer to borrow from alternative lenders instead of traditional lenders. Hard money lenders are more flexible, efficient, and lenient. Hard money lenders can fund a loan in a matter of days which is incredibly beneficial to savvy real estate investors who want to make a short-term investment. It’s definitely not a last resort.
Alternative lending is unregulated.
Hard money lenders may not have the same capital requirements as traditional lenders but they still adhere to federal and state lending regulations. Just because hard money lenders make it easier for investors to finance their investments doesn’t mean that they are exempt from contract law.
Alternative loans are for desperate borrowers.
Banks turn down loans for many reasons, not just bad credit. Savvy real estate investors with well-structured and profitable business plans can still leave a bank empty-handed. Alternative lenders have a lot to offer borrowers besides financing, such as communication, integrity, and timeliness. Alternative lenders want their borrowers to succeed in their investments and they will help the borrower find the right loan that works for them.
Alternative lenders are loan sharks.
Alternative investors do not give out loans unless they deem it wise and profitable. Their goal is to make a return, after all. Hard money lenders are specialists who will help the borrower find a loan that works for them. The terms of a hard money loan are not impossible, in fact they are incredibly flexible and the lenders make it easy for the borrower to negotiate.
Now that we’ve cleared these misconceptions up, it’s time to move on to the commonly asked questions. I want to make sure that you get all of the information on hard money loans that you need once you finish reading this article.
You have hard money questions and we have hard money answers. A hard money loan is a short-term loan for individuals purchasing real estate. Hard money loans are popular among real estate investors and if you are interested in real estate investing, here’s what you should know.
What is the process?
What makes hard money loans so popular with real estate investors is that the hard money loan can be in the hands of the borrower in a matter of days. Hard money lenders can provide finances quickly because the loans are funded either with their own funds or by private investors. Considering there is less paperwork and red tape, the loan can be approved quickly.
What is the interest rate?
The rate varies from lender to lender. According to Bigger Pockets, “The rate will range from 10% interest only to 18% interest only annual interest rate payable monthly in most cases. Some Lenders will defer interest payments to payoff, benefiting investors that do not want payments during rehab.”
What should the Loan-to-Value (LTV) be?
The figure is calculated by an appraiser and repairs and maintenance are considered in the appraisal. When it comes to trust deed investing, an important fact is the LTV associated with a deal. Since the property is being used as collateral, it is important to know the loan amount versus the value of the property. In the event of a default, the investor takes possession of the property and can sell it in order to recoup their initial investment. A low LTV will provide the investor with protection.
What is the length of the loan?
Most Hard Money Lenders can fund in a matter of days after receiving all the necessary documentation, while traditional lenders can take months. Applying for a hard money loan is a very simple process compared to traditional loans which is known for being a long and strenuous process. Once the real estate investor has been approved for the loan, they will receive the money in a matter of days. When it comes to investments, time is money.
Does credit matter?
Since the loan is collateral based, hard money lenders are not really concerned with the borrower’s credit. Because of this, they are typically willing to accept different types of collateral as long as the borrower can present profitable collateral to secure the loan. This means the potential borrower should provide them with solid plans for the property, as well as value of the land and the property as it is currently, to give them a better idea of what they are working with. They also look for ability to repay. Transparency is important when it comes to hard money loans and that transparency goes both ways.
Finding an alternative lender to handle these investments doesn’t have to be difficult. Get more answers to your hard money questions by contacting specialists at HML Investments.