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Clovis-California Hard Money Loans
If you’re planning on getting a hard money loan for the first time, you probably have a lot of questions that you need answered before you take the plunge. Hard money loans can be excellent investment tools for people looking to invest in real estate, but you need to know exactly how they work in order to benefit from them in the right way.
What exactly is a hard money loan?
A hard money loan is a short-term real estate loan given to investors who are looking to fund short-term real estate purchases. They’re supplied by individuals and organizations instead of by banks the way that traditional loans are supplied. Investors like hard money loans because they have looser lending criteria than traditional loans, making them ideal for people who’ve had credit issues in the past. Once you’re approved, you usually get your money is as little as a week, often sooner, making these loans the perfect option for people who need to get money fast in order to participate in fast-moving real estate deals.
It should be noted that hard money loans have higher interest rates than other types of loans due to the fact that the loans that they’re underwriting are riskier. Hard money lenders usually let borrowers make interest-only payment or no payments at all until the loan comes due at the end of the term via a single balloon payment. If you haven’t been making any payments all along, keep the high interest rates in mind as you prepare to write your check.
Common Questions From Potential Borrowers
Given the information above, many people still have questions regarding hard money loans. Some of those questions are below:
What types of people use hard money loans?
Hard money loans are primarily for real estate Investors who are looking to get quick access to funding for short-term real estate purchases. This list of investors includes developers, construction companies, fix-and-flippers, and buy-and-hold investors. They seek out these loans because they get access to the money quickly, allowing them to participate in fast-moving real estate deals.
How long are the loan periods for hard money loans?
Hard money loans are short-term loans, ranging anywhere from as little as six months in duration to as long as three years. They work for real estate investors because the investors usually plan to buy, fix and sell a property in a short period of time. Once the loan period is complete, the property should have been fixed and sold and the loan repaid.
What’s the difference between loan-to-value ratio (LTV) and after-repair-value (ARV) when it comes to hard money loans?
The loan-to-value ratio (LTV) is the amount of money that the lender will loan you on the property that you’re looking to purchase. That number is figured by the ratio of the loan amount and the overall current value of the property. Hard lenders generally extend anywhere between 65 percent and 75 percent of a property’s value to borrowers.
Some hard money lenders extend loans based on the ARV, or after-repair-value, of the property. The ARV represents how much the property will be worth once the repairs have been done. Lenders that loan based on the ARV usually loan anywhere between 55 percent and 70 percent of the property value. Check with the hard money lender you’re interested in to find what type of loan would be avaiable t you.
What type of business plan do you need to show a hard money lender?
Like any lender, a hard money lender needs to be sure that you’re going to be able to pay the loan back when the loan period is up. Prepare a business plan that details exactly how you’re going to get it done. Hard money lenders assume that you’re going to pay the money back when your investment property has sold. Lay that out in your plan, and also come up with a contingency plan in case the property sale doesn’t happen in time.