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El Monte-California Hard Money Loans
Purchasing real estate anywhere like in El Monte can be quite complex, especially when the homebuyer does not qualify for a conventional mortgage. This leads homebuyers to look elsewhere, and sometimes the solution is a hard money loan.
Still, this type of loan can be helpful to homebuyers who need the cash quickly, but it is a good idea to try to understand everything there is to know about this type of loan before deciding on it.
What is a Hard Money Loan?
In simple terms, hard money loans are an alternate real estate loan. This type of loan is based solely on the value of your collateral rather than speculation on what you might be able to pay in the future.
It should be pointed out that there are varying hard money loans that include the following:
- Bridge loan: These loans are given to people who intend to make a quick resale or refinance
- Fix-and-Flip: These loans are given to people who want to rehab a property and sell it to pay off the loan
- Owner-Occupied: Given to people who intend to live in the property
- Construction Loan: Given to real estate developers who can quickly rehabilitate the property to sell
You can see that hard money loans are usually reserved for people who are looking to buy an investment property in El Monte meant to be sold to pay off the debt. People looking to get a loan to purchase their own homes may not qualify.
The Perks of Hard Money Loans
Those looking to invest are going to love some of the perks that come with these types of loans, such as quick financing they often receive within a week, including short loan term lengths just to mention a few.
Keep in mind that the lender is going to require you to come with a little cash, usually based on a Loan-to-Value ration, so the amount is based on how much the property is worth.
Another little perk that investors are going to love are the lenient requirements. Most mortgages come with all sorts of requirements, like standard of income, debt ratios, and acceptable credit scores. Hard money loan lenders check on these things because that is the law, but they are not too interested in those numbers. A hard money lender really cares about the collateral to secure the loan.
The terms are pretty flexible since you will likely not be working with a bank but an individual lender who can customize the loan in your favor. This is not to say these loans do not come with a few pitfalls, like high interest rates or the lack of oversight because there are some bad lenders out there.
When is a Hard Money Loan the Wrong Choice?
Okay, you know that a hard money loan is for investors or people who have a bad credit score, but you should also be aware of when these types of loans are the wrong choice.
One thing that is not wise is to purchase a home with this type of loan when the market is slow. A loan like this can crumble a homebuyer if he or she is unable to turn a profit quickly to pay off the loan due to high interest rates.
You should also make sure you have a reputable lender before deciding on this type of loan. The best way to do this is to talk to a local real estate investor who can direct you to people who are willing to loan you the cash without stiffing you.
Still, it might be a good idea to have a few questions ready to ask your lender before making your choice. The following are just some questions:
- Do you lend money for owner-occupied properties?
- How do you want your payments? Interest only? or are you expecting one lump sum payment?
- What is your interest rate?
Hopefully, some of this information helps you understand these types of loans as you get involved in property investing in El Monte.