Montgomery-Alabama Hard Money Loans
If you’re a new real estate investor ready to start building your empire, getting a hard money loan is a great way to get started. A hard money loan is a short-term real estate loan that allows investors large and small to invest in short-term real estate. These types of loans are very popular, but it’s important that you know the ins and outs of getting one before you sign up.
These are short-term loans primarily made to investors.
Hard money loans are short term loans that have a period of six months to three years. The loan terms are short because the idea behind them is that an investor will purchase and rehab or build an investment property that will later be sold. At the end of the loan period, the hard money loan comes due in one lump sum payment.
Hard money lenders have relatively lax lending criteria.
When you try to get a loan from a traditional bank, the bank looks at your credit rating, looking at your credit score and searching for any black marks on your record like bankruptcies or foreclosures. A hard money lender is curious about your credit rating, but it won’t base its decision on it. The hard money lender instead looks at the collateral that you’re bringing to the table. The collateral will either be the investment property you’re planning on purchasing or a property that you already own. That collateral is sort of a guarantee for the hard money lender that it will recoup the loan many at the end of the loan term.
Hard money lenders prefer not to loan money to consumers.
Some people seek out hard money lenders to obtain financing for owner-occupied property that they intend to live in themselves. If this is your plan, it’s important to note that hard money lenders prefer not to lend money to consumers. Doing so would require that the lender apply stricter lending criteria and satisfy a host of other rules that they’d prefer not to. This is why they deal primarily with investors. There are a few hard money lenders who will work with individual consumers, so if you’re interested, just be aware of the limitations they will face.
Hard money loans have high interest rates.
One of the key things to note about hard money loans is that they have high interest rates, often going up to 15 percent and higher. The reason for this is that hard money loans are considered high-risk loans, with the hard money lender taking a huge risk. This high interest balances out that risk.
The loan amount you receive will be based on the property’s value.
Hard money lenders will use the value of your property to figure out how much to lend you. If the current value of the property is used, the lender will be using the LTV (the loan-to-value) ratio. This amount represents the ratio of the loan amount divided by the value of the property as it currently stands.
Some lenders extend a loan that uses the ARV, or after repair value. This means that the loan that the hard money lender will extend to you will be larger since the value of the home will be higher once it’s been repaired and upgraded. That also means that ARV loans tend to have even higher interest rates.
The hard money loan industry doesn’t undergo federal scrutiny.
The hard money loan industry doesn’t undergo federal scrutiny. This left the door open for predatory lenders to descend on unsuspecting buyers in the past. The industry is much better now, but do your due diligence when choosing a lender to make sure that you make a selection you feel comfortable with.