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Hard Money Loans Raleigh
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Have you been struggling to find a bank or a credit union that will approve your loan request? The unfortunate reality is that banks, credit unions and other financial institutions typically have strict requirements that must be met fully for loan approval. You may think that banks would be willing to make an exception for something minor. For example, if the bank’s minimum credit score is 680 and your score dropped right before closing to 670, the loan may be declined. This seems like a minor issue that may be easy for a bank to overlook. However, banks and credit unions generally have little or no wiggle room to make even a seemingly minor exception to their requirements.
Using Hard Money as an Alternative
Banks and credit unions are not the only financial resources available to you when you need to fund a real estate project. Hard money lenders are a financing resource that many people overlook or do not seriously consider, but they are commonly used by financially savvy individuals to fund projects that banks pass on. Hard money is not a term that describes what your loan experience will be like. In fact, hard money loans are usually easier to qualify for than a bank loan, and they can usually close in a fraction of the time. Hard money may describe the fact that that these loans are used to fund projects that banks find too difficult to approve and fund. Private lenders and investors make hard money loans using their private funds. They do not have a list of set underwriting requirements that your scenario must comply with, and this means that hard money loans are typically more flexible in many ways.
Understanding Hard Money Loan Terms
If you have a loan scenario that may require a more creative approach than what a bank will take, hard money may be a great option to consider. However, understand that the unique nature of hard money results in very different loan terms than what a bank may offer you. Before spending time and energy contacting multiple hard money lenders to request a quote, a great idea is to analyze potential hard money loan terms that you can reasonably expect. These loans are priced individually based on the merits of the scenario, but they follow a similar trend. For example, you can expect a lower LTV and a higher interest rate than what you may be accustomed to through your experience with bank loans. You can also expect to have a short term that may be less than one to two years, and a balloon payment is common with hard money loans.
Making Your Final Decision
It is not possible to accurately determine if a hard money loan is a suitable financing option for your specific needs until you contact several lenders to request a quote. The quotes that you receive may vary dramatically, so you will need to compare the options to find excellent hard money loan terms that work best for your needs. The financing that you select will play a major role on the overall profitability of your real estate project, so you should not rush through the process of finding the right lender to apply with. Remember that a hard money loan may close within a couple of weeks or less, so it is reasonable to spend at least a few days reviewing the options so that you make a wise and ultimately profitable decision.
Hard money may be a new concept to you, but private investors and private lending companies have been making loans to individuals like you for decades. Now that you know more about what these loans are, you may see the benefit of establishing a wonderful working relationship with one or several hard money lenders. By doing so, you can more easily obtain hard money financing when a great opportunity arises.
If everyone purchasing real estate could be easily approved for a mortgage, the process would be perfect. Unfortunately, many people have past issues with bankruptcies, poor credit, or other similar difficulties. For real estate investors with these problems, banks are not an option. Instead, many investors rely on hard money loans from private individuals and institutions, all of which must possess valid real estate licensing in their state to conduct business. While these loans have advantages and disadvantages associated with them, investors find them a useful tool on many occasions. If you are examining various ways in which to finance your next investment project, here are the most important points regarding hard money loans.
How Can I Use a Hard Money Loan?
As an investor, you can use a hard money loan for almost any type of project. Whether you are purchasing a piece of land on which you want to build, or perhaps purchase rehab properties for a fix-and-flip venture, the possibilities are almost endless due to the flexibility associated with these loans. And while most lenders of hard money loans choose not to provide funding for those individuals seeking to purchase owner-occupied properties, some lenders do choose to provide loans for these properties as well. But since doing so requires them to follow many more regulations and assess the applicant’s ability to repay the loan, it is generally viewed as not cost-effective for them to pursue these projects.
What is the Payback Period?
For a hard money loan, the payback period is much, much shorter than a mortgage. In most cases, the lender will only give the investor 12 months to pay off the loan, which puts enormous pressure on the investor to make sure their property sells within that period of time. Along with the short payback period, the hard money loan will also be sporting very high interest rates, often exceeding 15 percent or more, and many fees for underwriting and origination. And if you plan to pay off the loan early, you will be penalized for doing so. Therefore, while considering these loans, it is best to also explore other financing options that may have more favorable financial terms and conditions.
Collateral for a Hard Money Loan
When you apply for a hard money loan, the collateral used for the loan will be the property you are wishing to buy. Because of this, the value and condition of the property will play a big role in determining not only if you will be granted the loan, but also how much money you will get from the lender. To make this determination, the lender will examine the property’s loan-to-value ratio, or with fix-and-flip properties the after-repair-value ratio. If these are favorable to the lender, your loan will usually be approved. Therefore, if you will be buying a property for $100,000, the lender will probably give you as much as $90,000 to make the purchase, meaning you will only need $10,000 to complete the transaction.
Stay Away from Loan Sharks
Since there are few regulations surrounding hard money loans, it is the perfect feeding ground for loan sharks. Because they know some investors may be desperate for quick money, they make offers that may sound too good to be true. To be sure you are not dealing with a loan shark, use common sense on many fronts. For example, most loan sharks provide little if any paperwork, charge exorbitant interest rates, are not licensed, and may even use threats of physical violence if the loan is not paid back on time. Rather than put yourself in a potentially dangerous situation financially and physically, always ask other investors or real estate professionals to put you in touch with reputable hard money loan lenders.