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The perfect property just hit the market at a price that’s much lower than market value. It needs some work, but it could sell for four times the asking price with some upgrades. It’s the perfect investment property to flip and sell for a quick and tidy profit. The only problem is you don’t have the cash to pay for the property without a loan, and you don’t have the time to wait on a loan. This is where a hard money loan might help you out of your current predicament.
What is A Hard Money Loan?
A hard money loan is often the answer to your financial problems if you are an investor looking to flip a property. It is not, however, a traditional mortgage. It’s a loan you borrow for a short period of time, but you also have cash in hand in a matter of days rather than the weeks or months it takes to secure traditional financing. Hard money loans are not loans offered by traditional means. They don’t come from banks and other lending institutions. They come from other investors and sometimes from individuals looking to make a quick return on their own money.
What Do I Need To Get A Hard Money Loan?
The requirements to obtain a traditional mortgage are specific, and they vary greatly depending on the type of mortgage you want to secure. The common theme in any mortgage, however, is the time it takes to secure one. Lenders want borrowers with great credit, income they can easily prove, and they want form after form and signature after signature.
A hard money loan is not that difficult to acquire. A great credit score and perfect credit history are less important than the property you want to purchase. All the lender really wants from you for a hard money loan is proof that the property is more valuable than the money you’re borrowing. The lender in this situation isn’t foreclosing in the same manner as a lender who issues a traditional mortgage. A hard money lender immediately gets your property and has the ability to sell it back right away. The rules are strict, but the financing situation is much simpler.
Your personal financial history matters less to a hard money lender than the value of the property you’re using as collateral. Your ability to repay this loan is important to the lender, but it’s not as important as the value of the collateral if you cannot.
The Pros and Cons of Hard Money Loans
The biggest pro of a hard money loan is how easy it is to get. You don’t have to fill out as much paperwork and wait weeks or months to get your financing. You get it in days, and you get to start on your project right away. Furthermore, if you have a questionable credit history, it’s not going to matter as much with a hard money loan. Your chance of being approved for this loan with negative credit report marks is much higher. Another pro is the repayment schedule. You can work out something that works specifically for you and your financial situation, which is not what many lending institutions are willing to for borrowers.
The cons of hard money loans include the cost. They are significantly more expensive than traditional loans, and that’s why you must be confident you can flip and sell this property quickly. The faster you can pay off this loan the more money you save. The other big con associated with a hard money loan is that you cannot borrow it to fix up and flip a home that’s occupied by you. However, you can use it to fix and flip just about any other property as long as you don’t live in it.
If you have the ability to repay a loan in six to 24 months at a high-interest rate, you should apply for a hard money loan. It’s your chance to get the funds you need to flip a property with a big return on your investment. However, if you cannot do the work and have no idea what you’re doing, this might not be the best option for you when you’re just starting out.
A Look At the Options
When it comes to getting a hard money loan, there are actually quite a few different options that you can look into receiving. These are offered by lenders such as Delancey Street, so you will want to talk to them to better understand what type is for. We will briefly cover four of the primary types of hard money loans for you now. This will give you an indication of what the possibilities are as you continue to invest in real estate.
When you are looking to develop a piece of property quickly and then sell off the new structure, this is a type of hard money loan that can get you the money that you need. You can also use this loan to get the money you need for the purchase right away and then work to refinance the note shortly thereafter.
As A Bridge
There are times when you just need short term access to money in order to make a purchase happen. Your plan then is to either sell the property quickly or to use the proceeds from another pending deal to pay off the loan. That is where the name of this type of loan comes from. It is simply a bridge to help you get to where you need to be in the interim. You can also refinance this loan after you receive it if you find that it is taking longer than you thought to close another deal.
To Occupy An Existing Structure
Similar to a conventional mortgage, this type of hard money loan would give you the money that you need to purchase a piece of property that you intend to occupy yourself. It should be noted that these types of hard money loans are more difficult to get because of their short term nature. They simply are not designed for residential or commercial dwellings on the part of the investor. You would need to show that you have a plan to pay off the note in a very short period of time.
To Fix Up A Property and Sell It
Commonly referred to as a fix and flip loan, this will give you access to the quick cash that you need to finalize a deal on a property that is in need of repair. Your goal here is to make the repairs and then immediately set out to sell the newly remodeled structure for a profit. At that time, you would pay off the loan.
Hard money loans provide a real option for real estate investors to purchase properties without having to go down the road of a conventional mortgage. These loans are short term in nature, so you will want to keep that in mind. You may not even need to make any payments until the loan becomes due in full. If you do, it might just be for the interest.[flexy_breadcrumb]