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Hard Money Loans Portland
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Once you decided that getting a hard money loan is the way to go, you need to figure out the best way to make yourself look good to a hard money lender. Understanding exactly what hard money loans are and how they’re giving out will help increase your chances of obtaining one.
What is a hard money loan?
A hard money loan is essentially a short-term loan that is backed by real estate. It is used by investors who are interested in buying every having properties, construction companies that are doing major bills and other people interested in the short-term real estate market.
How do you get approved for a hard money loan?
It’s relatively easy to get approved for a hard money loan in comparison to getting approved for a traditional loan. Hard money lenders are interested in the collateral that you’re bringing to the table. This collateral could be a house that you already own or the property that you’re planning on rehabbing and reselling. Traditional lenders are concerned with the amount of credit that you have, your credit history and credit score, foreclosures, bankruptcies and anything else on your record that could give you a negative credit rating.
What do you need to bring to the table when applying for a hard money loan?
When praying for a hard money loan, there are several things that you need to bring to the table in order to help ensure that you get approved.
Solid Business Plan
Even though hard money lenders have much more relaxed criteria than traditional lenders, they still want to make sure that you have the ability to pay back a loan when it’s due. Presenting the lender with a concrete business plan can help ensure and reassure them that you have the ability to pay. For most people, proof of the ability to pay will be the sale of the property that they’re planning on rehabbing.
Most hard money lenders require you to bring a down payment to the table, so figure that into your expenses. Hard money lenders willl base the amount of money they’ll loan you on the value of the property that you’re using buying. Your down payment will be most likely be a percentage of the property value when you buy it, or they’ll base it on the value the property will have once it’s been rehabbed (the “after repair value, or ARV).
What sort of interest rate are you looking at with a hard money loan?
Hard money lenders tend to charge high interest rates for their loaloans, usually ranging from 5 percent to as much as 15 percent or higher. You need to check with the hard money lender that you’re interested in dealing with to find out how much interest you’ll be expected to pay. Hard money lenders charge higher rates for their loans because they’re taking on a greater amount of risk to lend you the money than other lenders would.
How do you find a reputable hard money lender?
There are plenty of hard money lenders out there, and you want to make sure that you are selecting the right one for your situation. Do a Google search of hard money lenders in your area to get an initial list. Next, reach out to other real estate investors in your area by joining groups and going to real estate investment conferences. This is a great way to connect with people who have experience with good lenders and get solid recommendations. You can also search on forums like Bigger Pockets to find a host of great information for investors who’ve been in your shoes.
What Are Typical Hard Money Lender Fees?
As with a conventional loan, a hard money loan comes with many fees that can add to the cost of your loan in addition to interest charges. These fees provide income for hard money investors. As a borrower, it’s important to understand the fees you may be charged to negotiate the best terms and interest rate.
Some fees are paid directly to the lender while others pass through the lender. The appraisal fee is a common “pass-through” fee that is paid to the appraiser of the property. You may also be charged credit card fees which cover the expense of a credit report.
A point is calculated as 1% of the total loan amount. For example, 1 point is equal to $5,000 on a $500,000 loan. Some hard money lenders charge points without separating underwriting fees and other costs to make closing costs simpler, or points may be charged in addition to these fees. The number of points charged will depend on many factors such as the loan-to-value (LTV) ratio, the complexity of the project, and risk. Upfront points are typically 3 points higher for private hard money loans than with a traditional lender.
This fee is usually a set dollar amount and it goes directly to the lender to cover underwriting. With most hard money loans, the underwriting fee will be between $750 and $2,500. This fee will usually be paid on top of any points you must pay, although some lenders incorporate underwriting fees into the points.
Document Preparation Fee
This fee may be charged as a pass-through fee if the lender uses a third-party company to prepare documents. Some hard money lenders prepare documents in-house, however.
Hard money lending is a very specialized business. Some lenders specialize in apartment complexes and residential rehab projects while others focus on office buildings and other commercial properties, for example. Many hard money lenders refer clients to a different lender who is better suited to the client’s loan situation. If this happens, you may be subject to paying a referral fee. A portion of the fees you pay for your private loan will go toward the original lender.
If you take out a construction or rehab loan, you will need to establish a draw schedule. Many lenders require 3 or 4 draws, although you can usually take as many draws as necessary until completion. At each stage of completion, you will contact the lender to request an inspection and a release of the draw. You will need to pay construction draw inspection fees that may be $100 to $150 each.
You may have the option to renew your private money loan if you have been a dependable borrower who has paid on time. This is beneficial to the investor as their money will continue earning a return and you will receive additional time to pay back the loan. If you do renew the loan, you will likely need to pay a fee. You can pay the fee upfront or have it added to the principal of your balance.
If the hard money lender services the loan, an investor will pay loan servicing fees directly to the lender. The lender will collect your payments, maintain records, and supply you with reports. Loan servicing fees are sometimes charged at a flat fee per month but they can also be charged as a percentage of the total loan (usually 0.25% to 1%) and paid monthly.
As with any other loan, you can expect to pay a late fee if you make a payment past the date specified in your promissory note. Most loan servicers split the late fee with the investor.
Most hard money lenders offer foreclosure services, although some outsource foreclosure work. In some cases, fees generated during a foreclosure may be shared with private money investors.
If you are planning to take out a hard money loan, it’s important to discuss the fees you can expect with your lender during the application process. A reputable lender will be upfront about points, underwriting fees, and other expenses you will face.