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Abilene-Texas Hard Money Loans
Once a real estate investor discovers a property they wish to purchase, they want to complete the transaction as soon as possible. However, if they pursue a traditional mortgage through a bank, gaining financing may take several weeks. Rather than go through this time-consuming process, many investors rely on hard money loans to get that perfect piece of property. But since hard money loans differ from traditional mortgages, knowing the details associated with these loans is very important before committing to this form of financing.
When an investor pursues a hard money loan, it may be for a variety of different projects. For some investors, the loan will be used for a fix-and-flip project, where they will purchase a property, quickly make the necessary repairs, and then sell it for a profit, enabling them to pay off the loan. For others, it may be used to purchase a property to start a business, or perhaps a construction project. Whatever the case may be, since these loans are provided by private individuals and institutions, each investor’s case is considered case-by-case, making these loans suitable for many investment options.
Repaying the Loan
Unlike mortgages where the bank assesses a person’s ability to pay back the loan, the lender of a hard money loan is concerned much more about the value of the property to be purchased, since it will be used as collateral for the loan. Along with this, the payments made on a hard money loan will not be monthly payments of equal value applied toward the principal. Instead, the investor will make interest-only payments, with a balloon payment at the end to pay off any remaining principal, interest, and fees. Also, it is important to note that while a mortgage has a payback period of anywhere from 15-30 years, hard money loans often have payback periods of no more than three years.
Have Your Own Money
While a hard money loan will typically provide an amount equal to as much as 90 percent of the property’s value, it will rarely if ever give an investor the full amount to purchase a property. Because of this, any investor preparing to use a hard money loan must be prepared to have 10-20 percent of the property’s value ready as upfront money. In most cases, the lender will look at the property’s loan-to-value ratio or after-repair ratio, which will let them determine how much money they will lend toward purchasing the property.
Past Financial Problems
If an investor who has had past financial problems with bad credit or bankruptcies attempts to secure a mortgage at a bank, they are most likely wasting their time. However, if pursuing a hard money loan, the lender cares little about these or other financial problems from the investor’s past, since they are in a win-win situation. For the lender, either the loan is paid off on time, is refinanced at a higher interest rate, or they foreclose on the investor and take ownership of the property. However, since past problems are not an issue in securing hard money loans, investors can gain these loans very quickly, often in less than one week.
Finding Hard Money Loan Lenders
For investors who have never used a hard money loan to purchase property, one of their biggest obstacles is finding a lender who specializes in these loans. But while this may sound difficult, it is often much easier than most people realize to find a source of local hard money loans. In most cases, simply asking other investors or real estate professionals will usually lead to many sources of these loans. In many places, chances are numerous investors are using this method of financing, so finding a local lender should be no problem.