When it comes to getting the right loan, not everyone’s needs are the same. In some cases an individual might need money faster than usual for a real estate purchase. Others might not be able to qualify for a conventional mortgage. There are even some individuals that need a loan for a short amount of time. These borrowers often find hard money loans to be the best solution to their problem.
What are Hard Money Loans?
Hard money loans are a type of loan that uses the value of the collateral as the major factor for lending money for the purchase of real estate. While conventional loans and hard money loans both act as a vehicle for the purchase of real estate, they are very different. Hard money loans typically have very short repayment periods and they carry high interest rates. There are a number of options when it comes to types of hard money loans such as:
Construction Loan – This loan type provides financing options for a real estate developer to get started on the latest project right away and ultimately sell or refinance the project.
Bridge Loan – With a bridge loan an individual can purchase real estate quickly while it is available and then sell it fast or refinance the property. In some cases this can allow the individual to gather together the money necessary for a down payment or improve their credit situation in order to gain approval through a conventional lender.
Fix-and-flip Loan – This loan type is often used by investors that plan to purchase a property, rehabilitate it and then sell the property very quickly allowing for the complete payoff of the loan.
Owner-occupied Loan – Those borrowers that are not able to qualify for conventional financing might turn to these loan types in order to purchase a property to live in. Perhaps the buyer can manage the higher monthly payments and interest rate, but simply can’t qualify for other loan types.
Is a Hard Money Loan the Right Choice?
There are a number of factors that are important when considering a hard money loan for your real estate purchase. Some of the downsides related to these loan types include:
High Interest Rates – The higher interest rate is perhaps one of the most obvious negative aspects of hard money loans. These interest rates can range up into the double digits.
Additional Fees – In some cases hard money loans carry high fees in addition to the high interest rate. These might include origination fees, construction draw fees, underwriting fees and even pre-payment fees.
Government Oversight – While conventional lenders and mortgage companies are typically held to a higher standard by government, there are fewer rules, monitors and regulations related to the hard money lenders requirement that borrowers take great care in which lender they choose to work with.
Short Loan Terms – Due to the nature of hard money loans, terms as low as one or two years are expected. This means that the entire loan as well as any fees and finance charges will come due and payable very quickly.
How to Obtain a Hard Money Loan
If you have weighed the options and decided that a hard money loan is the best choice for your situation, you will want to choose the lender carefully. One way to find these lenders is by reaching out the real estate investors in your area. It is likely that they can give you some direction as to who to stay away from and who is reputable. After narrowing down the options, check out the potential lender online and with the Better Business Bureau. This will provide valuable information about any complaints filed against the lender.
It’s important to weigh your options carefully when choosing a lender and the type of loan that fits your needs. Take the time to learn about the prospective lenders and consider how you will repay the loan when it comes due.
If you live in New Hampshire and you’re interested in a new construction loan, there are several different ways you can get this loan. The first thing you need to do is decide what type of loan you are going to get. When it comes to the world of construction, a commercial construction loan would be the most popular loan. This type of loan allows business owners to either build a brand new facility or renovate an existing facility. The lender will work with the borrower to find the perfect construction company to take on this job.
Most business owners with large businesses choose this type of loan. The main reason is that large businesses can practically borrow any amount for their project. Amounts usually range from $100,000 to $1,000,000. Small business owners can also utilize this type of loan, but the amounts that can be borrowed will be significantly smaller.
Many business owners second-guess themselves when it comes to taking out a commercial construction loan. However, if a business owner feels his/her building needs a makeover or a new location in general, it would be good to take out one of these loans, which will make this dream possible. The great thing about a commercial construction loan is that work can get started right away. This is excellent for business owners who need work done but do not have the cash to pay for it all at once.
Though a commercial construction loan is a loan, it does not work the way regular loans work. The main difference with a commercial construction loan is that the money is not given until work is completed. The lender will create a schedule with the borrower and the construction company. This schedule will contain a timeline for the construction company to finish certain parts of the project. Once these parts are completed, funds will be released to the construction company. This usually takes place several different times depending on how long the overall job will take to be done. The great thing about a loan working this way is that the money is not just given. The borrower and the construction company has to provide evidence that a certain point has been reached in the job to warrant more funds. This keeps the borrower protected from the money given out without the job being done.
Once the loan is finished being measured out to the construction company, the borrower must immediately get in contact with the lender. This is because a commercial construction loan must be paid back in full in a short time period after the money is paid out by the lender. In this situation, most lenders work with borrowers to put together some type of agreement that will allow the borrower to pay the loan back over a long period of time. The borrower can pay the loan back in full if he/she desires, but this is usually not the case. This is especially true for business owners who borrow millions of dollars to build a new establishment.
The first step in this process is to truly make sure you want to take out this type of loan. Once you are sure you want to take out this type of loan, you can begin to explore all of your options.