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Louisville Hard Money Loans
Have you ever heard of hard money loans and wondered what they are all about? These are loans that are taken by real estate investors to finance their property acquisition processes. Unlike the other loans that you get from banks and other financial companies, these do not require you to provide anything other than property as collateral. It is the attachment to property that the name hard money was coined. You may not know much about this if you have never been involved in real estate. To help you understand more about Louisville Hard Money Loans, check out the facts explained below.
The property you can offer
When submitting your application, the company will ask you to provide a property that will be used as collateral. You need to know that they will be coming to verify the existence and ownership of the property. Therefore, the first thing is to ensure that there are no disputes related to that property. Sometimes, there may be a court case on the property meaning that its future is not certain and so, it will not be accepted. You should also check the property value so that it matches with the amount of loan you are requesting.
People who qualify for these loans
As long as you are a real estate investor and you have the property that you can attach as collateral, you are good to go. However, you need to understand that it is not an automatic approval. Each company has their unique way of determining who gets loans and so, you should check their terms and conditions. It is not surprising to be turned down by one company only to be quickly accepted by the other. It is because they have different methods of evaluating their customers and so, you have to find where your right fit is.
How these loans help real estate investors
Louisville hard money loans would not be so popular if they were not helpful to the investors. These loans have been used to grow firms from scratch. A good situation is when you are bidding for some property, but you do not have the cash to pay for it. You know that you can resell it at a higher amount, but you are short of money. When such a situation occurs, you can use one of the other properties that you own to secure a loan. Once you by, you can remodel and sell it at a higher price, pay your credit, and keep your profits.
How these loans are processed
The processing of these loans is entirely different from what happens with the other types. To start with, it is a relatively short process. You will be surprised to find out that the lender is only interested in knowing a little information about you. The only thing that may delay the approval is the assessment of your property. Once this is done, your loan will be approved, and you will have it in a few days. This is amazing especially when you remember that there are people who apply for mortgages and wait for several months before getting a response.
Why they are better than traditional loans
The speed at which these loans are processed is the most important thing that puts them ahead of any other borrowing option. If you consider the urgency of money when it comes to this industry, you will agree that investors have no time to keep waiting especially when they are not even sure that the loan will be approved. In addition to that, people like it because of its simplistic nature. It feels like borrowing from a friend because the loans are short term meaning that you will have to settle them in under 24 months.
To be sure of getting the best Louisville hard money loans, you have to search for those that have been helping real estate investors for long. These are the companies that can guarantee good relations so that at the end of the day, both parties are happy. You should talk to them about their interest rates because it will help you to know how much money you will pay at the end of the deal. In addition to that, you may want to know if the payment period is flexible or fixed to their terms.
When a traditional mortgage lender becomes nonfunctional, real estate investors opt for a hard money loan. The hard money lender’s collateral is the property that still serves as the asset. Thus, this type of loan is an asset-based loan. Your credit history, as well as your income, has a significant effect on the approval of a traditional loan. Traditional lenders prefer people that have a reputation of repaying their loans.
However, regardless of how secure your credit and income might be, it so not a guarantee that you will get a loan. Loan processes are also lengthy and invasive. A hard money lender uses a different approach. They lend money depending on the collateral available. Thus, your credit history will not be an essential consideration for a hard money loan.
Nevertheless, hard money loans are not meant for everyone. Some situations are more suitable for this type of loan than others. A typical investment trend is flipping houses. If you do not have the capital to pay beforehand for a house, you should consider taking a hard money loan and buy the property. During this short period of ownership, you can remodel the home and sell it for a profit.
How It Works
The period through which you can have access to a hard money loan is typically between six months and two years. The period is shortened because the interest rates with this loan are higher than the traditional loans interests. Thus, as a real estate investor, the longer you stay with the loan, the higher the payment cost you will incur. You can technically use the proceeds of the loan for anything you want. For example, you can use the funds to invest into your new wallet manufacturing company.
However, the loan has the advantage of giving you the ability to close on a property bid faster. Also, you can start the bidding war on the property you want to buy next. Investors and developers use hard money loans because they allow them to buy more properties. It also allows them to engage in more deals even though their starting capital is not massive. Hence, they make significant returns on their investment.
The Difference between Hard Money Loan and Traditional or Direct Loan
Many factors differentiate traditional loans from hard money loans. The most common difference is the level of leverage that these types of loans offer investors. Hard money loans provide a more significant advantage to the borrower making them close and fund deals faster.
As mentioned above, hard money lenders consider the value of the property and not the borrower’s credit history. Even when the credit history and experience is considered, the loan programs are still flexible enough to offer loans to any borrower. All you need to have is a decent deal and borrower profile.
2. Repayment Schedules
The underwriting process lacks flexibility with traditional and direct lenders. Hard money lenders, on the other hand, can change their repayment schedules because of their versatility. They are not held to specific regulations and guidelines. Thus, they can vary within the contract.
Many of the hard money lending organizations do not concern themselves with your position financially. Thus, the loan process moves quickly. Some of these loans can close in a few days if the property does not have issues and the borrower is prepared.
Types of Hard Money Loans
1. Acquisition Loan
An acquisition loan is a loan that offers to finance with the intention to purchase property only regardless of the purpose of resale or conversion.
2. Construction Loan
Hard money construction loans finance new residential or commercial construction projects in installments. They only take six months to a year, and they require interest bundled in the loan.
3. Bridge Loan
A bridge loan otherwise called interim financing is short term, and it leverages the equity that the borrower owes on a property. They are ideal for investors with multiple projects happening at once.
Types of Properties
You can get a hard money loan on any property. However, check whether you will get a loan on a property that is residential owner-occupied. Also, consider if it is a fix and flip or a fix and hold case.
Getting a Hard Money Loan
First, identify the property for your investment. Then submit your information for the application. You will be required to present information about the property, proof of income and a personal financial statement. However, some deals can be different. After submitting the information, wait for the underwriting process to approve on the agreement, and if approved you proceed to close.