A hard money loan refers to a loan for the short-term that is secured through real estate. Private investors, or a fund of investors, fund hard money loans. Banks, credit unions, and other conventional lenders typically don’t fund hard money loans. The term of a hard money loan is around 12 months. However, the term for a hard money loan can be as long as two to five years. This type of loan requires monthly payments of at least the interest. In some cases, monthly payments of interest and principal is required. At the end of the term for the loan, a balloon payment is required.
If you’re interested in this financing product, here are ten things you need to know about hard money loans.
1. Difficult transactions are made possible by hard money loans. If you are unable to get a bank to back up a transaction, a hard money loan may be your best option.
2. Hard money loans are not as expensive as you may believe. Hard money will generally cost you more than a typical bank loan. However, you should be able to get a hard money loan at favorable terms and rates. Investors generally expect to make a lot of profit from properties purchased with hard money. Therefore, a hard money loan is often relatively inexpensive.
3. Your cash reserves will impact whether you get a hard money loan. A private lender will want to know whether you have the funds to actually service their loan.
4. You can use private loans for straight purchases, rehab financing, and construction.
5. Hard money loans are short-term. Therefore, you can expect your loan to close in weeks or even days. A three-day close for a hard money loan is a possibility.
6. Hard money loans will allow you to enjoy flexibility. A private individual will be able to exercise flexibility when it comes to the structure of their loans. A hard money loan may better meet your needs than a normal loan.
7. Rehabs, flips, and distressed property transactions won’t be an issue. A private lender will be happy with anything that will make you profit as an investor.
8. If you get a private mortgage loan, you will have an easier time getting the cream of the crop deals. If you can buy with a short loan contingency or no loan contingency, you will be a very attractive buyers to those selling distressed property.
9. There are 30-year amortization periods available for hard money loans. There are also hard money loans on an interest only basis for those that are short term. Therefore, you may be able to free up your cash flow if you get a hard money loan.
10. Private mortgagers will care more about your integrity than your credit score. The vast majority of private lenders will not refuse to do business with you simply because your FICO score isn’t perfect.
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