Boise City-Idaho Hard Money Loans
If you are a real estate investor who has your eye on a piece of property you know is a great buy, the last thing you want to see happen is have another investor swoop in and buy the property before you have the financing to do so. However, if you choose the route of traditional mortgages at a bank, that may very well happen. Thus, more and more investors, especially those who have had past problems with bad credit or bankruptcies, choose to focus instead on obtaining hard money loans. With a much simpler application process, quick turnaround times in obtaining funding, and flexibility in how the loans can be used for various projects, hard money loans are getting plenty of attention from today’s investors.
Basics of Hard Money Loans
Since hard money loans differ greatly from traditional mortgages, there are several things investors seeking these loans should know from the beginning. To start with, hard money loans can be used for various types of projects, including fix-and-flip properties, construction projects, and almost any other real estate investment project. However, they are rarely given out to those seeking financing for properties in which they will be living. But since hard money loans are obtained through individuals or private institutions, each investor’s situation is considered unique, so it is possible various types of arrangements can be worked out along the way.
Have a Plan in Place
If you decide to pursue a hard money loan, have a solid financial plan in place before getting the loan. To find a lender, start by asking other real estate investors in your area. Since it is likely other investors have turned to this source of funding, you should have little difficulty locating hard money loan lenders. Once you do, be sure you understand the terms associated with the loan. In most cases, this will include a much shorter payoff period that traditional mortgages, usually no more than three years. Along with this, the loans will carry higher interest rates and fees for underwriting, origination, and even for early payment of the loan balance. However, if you have a solid financial plan in place that will allow you to sell a property and pay off the loan in the specified payback period, these loans can be very useful.
Beware of a Buyer’s Market
For a hard money loan to be effective for an investor, it should be obtained when there is a seller’s market for local real estate. Otherwise, you may find yourself obtaining a hard money loan, purchasing a property, and then having the loan come due before the property has been sold. If this happens, your options will be to refinance the property or be foreclosed upon by the lender, neither of which will be good nor profitable.
Repaying the Loan
As stated earlier, hard money loans have much shorter payback periods than traditional mortgages, and also use balloon payments at the end to ensure all principal, interest, and fees are repaid. But along with this, it is important to remember that the lender will be looking at the value of the property to be purchased, since it will be the collateral for your loan. Therefore, you will need to not only be aware of how the loan will be paid off, but also have a certain amount of money upfront to make the purchase. With most hard money loans, expect the lender to provide a loan of 80-90% of the property’s Loan-to-Value Ratio. Thus, if you are planning to purchase a piece of investment property for $100,000, you will likely need as much as $20,000 of your own funding to go along with the hard money loan to make the purchase, so keep this in mind.