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Columbia-Missouri Hard Money Loans
When buying real estate, most people believe the only source of financing is a mortgage obtained at a bank. While this is used for the vast majority of real estate purchases, there are other sources of financing, one of which is hard money loans. While these loans offer large amounts of money much faster, they do differ substantially from traditional bank loans in terms of payback periods, interest rates, collateral requirements, and many other areas. Because of this, investors seeking out these loans should do their homework about the differences in these loans before making their final decision.
Are There Different Types of Hard Money Loans?
When it comes to hard money loans, one of the biggest advantages to investors is the various types of projects and purchases for which these loans can be used. As an example, many lenders will work with investors who want to purchase flip-and-fix properties, since these properties can often be bought fast, repaired quickly, then sold at a substantial profit, which leads to the loan being paid off on time. For other investors, they will use their loans for construction projects or as bridge loans, which are loans enabling them to get the cash needed for a purchase before the final sale of a property they currently own. Since there is so much flexibility associated with these loans, lenders are able to consider each investor’s plans on a case-by-case basis.
How are Hard Money Loan Payments Structured?
Once an investor accepts a hard money loan, the payment structure will be very different from a traditional mortgage. One of the biggest differences will be the payback period, which will probably be from only one to three years, depending on the lender and the amount of the loan. Along with this, the loan will have interest-only payments, and feature a balloon payment as the final payment. Since these loans have very high interest rates and numerous fees associated with them, the balloon payment can be very substantial. Because of this, the investor should have a solid plan in place to ensure the property they purchase can be sold within the payback period. Otherwise, they could lose the property to the lender in foreclosure proceedings.
Easy Applications and Approvals
Rather that subject themselves to the complex application process associated with mortgages, investors choosing hard money loans can find the application and approval process much easier. Since these loans have few regulations associated with them, lenders have much more flexibility in deciding whether or not to grant the loan. Along with this, since the lender will be using the property as collateral for the loan, they do not have to worry about the investor’s ability to repay the loan, resulting in them not having to spend time doing credit checks and other aspects of traditional loan approval.
What if the Property Purchased Doesn’t Sell in Time?
Even with the most seasoned investors, there comes a time when a property that is purchased does not sell before the hard money loan must be paid back in full. In these cases, a variety of options exist. For instance, the investor can apply for a loan extension, but this usually carries higher interest rates and penalties. Another option is refinancing the property into a traditional mortgage, or in the worst-case scenario cutting their losses and allowing the lender to foreclose on the property. To ensure none of these situations develop, investors should carefully do their homework about these loans, and always be sure they have a plan in place that virtually assures them of the property selling in a short period of time.
By going into hard money loans knowing all the facts, investors can use these unique short-term financing options in creative and profitable ways.