What is an asset based loan? An asset-based business line…
Corona-California Hard Money Loans
As you learn more about hard money loans, it’s important to ask the right questions when speaking with a lender. While there are certain aspects of hard money loans that are universal to these types of loans, every lender will have their own stipulations regarding their approval and repayment processes.
Questions You Need to Ask Hard Money Lenders
Be sure to learn the answers to the following questions:
- Are there only certain types of properties I can use this loan to purchase?
Most hard money lenders in Corona, California give loans for any type of property. However, With the average hard money lender, borrowers are only allowed to purchase a property for investment purposes. Individuals that plan to purchase a home to live in may be able to use a hard money loan, but most lenders only deal with investors.
- Should I find my property before applying for the loan?
While the application process for a hard money loan is fairly simple, it is important for investors to find a property prior to applying. This reason for this is that lenders need to know the value of the property that the investor is buying before they can approve an adequate loan.
It is important to also note that if you don’t have a property in mind, there are hard money lenders that give loans out based on property you own already if it is used as collateral.
- How are borrowers expected to repay the loan?
Can payments be made during the term? Are there penalties for early payments? Is the full balance expected when the loan is due? Are there any hidden expenses that will be added on along with the final balloon payment?
Questions regarding how the loan should be repaid is one of the first things you should ask a lender. This will allow you to work out a plan for repayment so you don’t end up in a difficult situation once the loan is due.
Most hard money lenders expect the loan to be repaid in a balloon payment. This final payment is often paid with the cash from the sale of the property, but investors can also refinance the loan or extend it. If investors aren’t able to come up with a solution for repaying the loan, the lender will foreclose on the property.
- What interest rates can I expect?
Every lender will have different interest rates, but investors can always expect hard money loans to have higher-than-normal interest rates. Some lenders tend to hide their interest rates, so investors must always ask about them.
While it is illegal to charge interest rates above your state’s usury limits, most of these loans have higher interest rates because of the risk involved with hard money loans. As borrowers aren’t vetted for their ability to repay the loan, the lenders are assuming the risk when they loan money based on an investor’s collateral.
Even with higher interest rates, hard money loans are still valuable to real estate investors. These short-term loans only collect interest during the loan term, which is typically one year or less.
- Are there additional fees?
As with the interest rates, investors need to question lenders about the other fees that may or may not be involved. Oftentimes, hard money lenders will charge construction draw fees, origination fees, underwriting fees, and early-payment penalties.
Combine these with the interest and the final amount of the loan and you’ll likely be unprepared for the amount you have to repay when the time comes. Avoid this situation by asking your lender outright about all expenses.
The right lender will be able to show you how a hard money loan can help you advance in your real estate investing. If you’re ready to take advantage of new opportunities with fast financing, contact a lender today.