Qualifying for a traditional mortgage loan is great, but not always possible. Fortunately, real estate investors can look to hard money loans as an alternative solution when things don’t quite go as planned. In fact, many people appreciate hard money loans because they are fast and easy. There’s a lot to know about this asset-based loan product. Here’s a breakdown of the facts.
About Hard Money Loans
Instead of your ability to repay, hard money loans are made based on the value of your property because it serves as collateral. While your financial standing isn’t altogether insignificant, it’s far less important to hard money lenders than it is to traditional mortgage lenders. Hard money lenders take a different approach during the lending process too. They tend to look at each individual situation as opposed to simply following a template of requirements.
Real estate investors have a wide range of needs when it comes to loan products. Some of the common types of hard money loans are construction, bridge, fix-and-flip and owner-occupied. Real estate developers have the benefit of a construction loan that can be used to start a new construction project and either quickly sell it or refinance. A bridge loan lets you buy a property and then refinance or resell it. With a bridge loan, you can also buy a new property before you get the cash down payment from the sale of a property in your portfolio. A fix-and-flip loan is for buying, fixing and then flipping a property, at which point you will pay off the loan.
Unlike the other products mentioned, there is an owner-occupied loan that’s uncommon and only a small percentage of hard money lenders offer them. It’s because owner-occupied consumer loans are highly regulated and complicated. However, there is still a chance that you can find a hard money lender that offers this product to individuals who plan to live in the property, but are unable to secure a traditional mortgage.
How Hard Money Loans Work
One of the biggest benefits of hard money loans is the easy application process that is free of hassle and boasts a turnaround time of just days. That’s definitely a perk to real estate investors. You are generally required to have a cash down payment that depends on your property’s Loan-To-Value (LTV) ratio or After-Repair-Value (ARV) ratio.
The term for hard money loans is just a few years, but typically one year. Instead of making the usual principal and interest monthly payments, there’s a chance that you will only need to make monthly interest payments. There’s also a chance that you won’t have to make any payments until the maturity date, at which point you will make a balloon payment. The balloon payment includes the principal, any remaining interest and all fees.
Is a Hard Money Loan Right for You?
When it comes to the benefits of hard money loans, it’s clear. They offer quick money, relaxed requirements and flexible terms. Specifically, you could apply for a loan and receive funding in less than a week. There’s a chance that your loan could be approved with low credit scores and other issues. The bottom line is that you will have access to financial resources, which can increase your investment portfolio.
On the opposite end of the spectrum are the aspects of hard money loans that require due diligence in making a decision. Simply put, the interest rates are high, there are often a lot of fees, and the terms are short. Due to the minimal government oversight, you’ll need to be cautious about choosing a lender. You might also have an issue with refinancing before the “seasoning” period required by traditional lenders. Nevertheless, when all of the pros and cons are weighed, many investors decide that hard money loans are a valuable tool.
If you invest in real estate in Austin, a new opportunity for funding is available. Our company has introduced hard money loans for those who rehabilitate and sell properties for a profit. Bridge loans and many other types of hard money loans are also available to those who would like to purchase a property in a hurry with no money down. Even if you’ve had credit or other issues in the past that prevented you from obtaining financing, we can most likely help. Our dedicated loan professionals have helped many investors in Austin to reach their fullest potential and increase their bottom line.
What is a Hard Money Loan and How Does it Help My Current Situation?
A hard money loan is intended to provide fast funding for those who need to take advantage of a great deal on a property. Typical clients include investors that “fix and flip” properties for a profit and those who want to purchase lots and land to improve upon in the future. The loans are approved and funded typically within a few days.
Another major benefit to hard money loans is the underwriting process itself. These loans focus on the quality of the collateral and the potential profits it could produce. Traditional lenders tend to focus on the borrower’s ability to repay the obligation rather than the collateral. Since hard money loans are typically a year or less in length, the property is the primary concern from our standpoint.
The interest rates tend to be a little higher than a traditional loan; however, this is offset by not having to pay a monthly insurance premium as you would with low down payment conventional loans. We’re also able to make exceptions for certain conditions due to the unconventional terms of the loan. Borrowers are also able to make minimum monthly payments with interest only, adjustable rate, and balloon payment mortgages. This is beneficial since the property is only being held until sold to the new homeowner. Reducing overhead is typically a concern with many of our investors.
How Do Hard Money Loans Differ from Traditional Lending Guidelines?
Hard money loans aren’t government funded or backed, so there’s much more freedom in making exceptions and modifications. With government loans, strict criteria must be adhered to. Conventional mortgages are also designed for those who intend to reside in or own their property for an extended period. Hard money loans aren’t designed for principal residences just as conventional loans aren’t designed for investment properties.
What’s Required to Apply for a Hard Money Loan in Austin
The minimum requirement is a property that’s been inspected and has a high potential for profitability. Our company appreciates estimates and any other information that can help us envision the success of your project. Recent appraisal information, home inspection reports, tax bills, and title searches are also helpful. We must be able to justify the loan request with an updated appraisal and information that would support the after-repair value to be a realistic estimate. Business and personal financial records are also helpful to give us an overall picture of the scenario.
How Do I Apply for a Hard Money Loan in Austin
To apply, simply visit our online loan application. You’ll be asked for some information about your request. After our loan professional looks over the information, they’ll get in touch with you to go over the entire process. From there, you’ll submit your application and any other documentation that’s been requested to approve the loan. You’ll soon be scheduled for settlement and will have the funds to make your project a reality. See why so many investors in Austin choose us as their real estate finance company. Get in touch with us and we’ll be happy to get you started on your next project, today!