While a standard mortgage does work for some homeowners, it isn’t an option for everyone. In some cases, people need a financing option that will provide money ASAP while others find that they don’t qualify for a typical mortgage. Thankfully, there are other options.
Understanding Hard Money Loans
Of the many other financing options, hard money loan in Miramar, Florida are a viable solution that most people user as a mortgage alternative when investing in property. Read on to learn more about hard money loans.
What is a hard money loan?
Hard money loans are popular real estate financing options.These loans are determined by the value of the collateral, rather than the borrower’s ability to repay the loan.
There are various types of hard money loans:
- Bridge loan: A bridge loan is intended for individuals that are buying a property in order to refinance or resell it. These loans are also used in the situation that an individual needs cash for their down payment as they are awaiting the sale of their currently owned property.
- Fix and flip loan: This loan allows an individual to purchase a property in order to rehab and resell it, ultimately paying the loan off with the profits that are made.
- Owner-occupied loan: This type of loan is intended for consumers trying to purchase a property that don’t qualify for any other type of financing.
- Construction loan: A construction loan is designed to allow real estate developers to receive faster funding for new construction projects, as they have a goal of selling or refinancing it once the construction is complete.
- Other: Lenders of hard money loans in Miramar, Florida are private firms and individuals, so there are a variety of other situations that may qualify to receive funding.
How does a hard money loan work?
While hard money loans can be used in a variety of situations, they aren’t guaranteed to everyone. As most lenders give out these loans for investment purposes only, borrowers looking to fund their own private projects will likely be turned down.
As they are designed primarily for borrowers that are investing in real estate, hard loans are typically given on a short-term basis, typically for a few years or less. While most hard loan terms last 12 months, they usually must be repaid through interest-only payments.
With this in mind, many real estate investors find hard loans to be the ideal financing option. These loans provide quick financing, short-term lengths, and a simple application process.
What do borrowers have to pay back?
Most borrows don’t receive their hard money loans without putting some money down first. Every lender will require that a borrower provides a certain amount of money based on either the ARV or After-Repair-Value or their LTV or Loan-to-Value ratio.
To illustrate, if a lender offers a maximum loan according to a 50% LTV ratio, you will have to provide $50,000 of your own money to buy a property that is listed at $100,000.
When paying the loan off, borrowers are typically expected to provide one balloon payment, This money will cover the principal of the hard loan in its entirety, as well as any additional interest and fees.
What are the downsides of hard loans?
Borrowers should exercise caution when taking out hard loans due to the high interest rates. These hard loans often have interest rates in the double-digits. Though these loans are for short-term periods, the high interest rates can quickly inflate your final balance when all is said and done.
While many people are able to make hard money loans work for them, it’s best to use your judgement as you decide which financing option is best for you. Use this guide to help you determine if a hard money loan will be worth it.