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Sunnyvale-California Hard Money Loans
While you may have been under the impression that the “hard” in hard money loans referred to the application process, you would be wrong. Hard money loans are easy to qualify for and lenders approve the funds faster than you might think.
Getting a Hard Money Loan
Hard money loans are likely the most flexible financing option when it comes to real estate investment. As most of the lenders of hard money loans are private individuals, investors will find that there is a distinct variability in the type of borrower a lender is looking for.
As long as you have some sort of property for collateral, most lenders will be happy to do business with you. While they may review your financial situation, it is likely that this won’t affect their decision regarding lending you a loan. Another important detail to note is that while lenders may or ask about your credit score, some require that a down payment be made upfront.
Interest, Additional Fees, and the Final Payment
With the ease of the hard money process, investors should still exercise caution. Borrowers must always keep the repayment process of the loan in mind when applying for a hard money loan. Most investors that have had poor experiences with hard money loans did so because they failed to fully understand all the details of repaying the loan.
With regards to paying a hard money loan back, investors should expect to pay three things: the interest, additional fees, and a balloon payment. While every lender won’t have the same pricing structure, the following are the basic expenses investors should keep in mind:
- Interest rates
Looking into a hard money loan but afraid of the interest rates? You’re not alone. Most investors that are weary of hard loans don’t understand how the interest rates affect the costs of the loan.
Though many hard loans have credit card-esque interest rates, investors must take into account the other details. Hard money loans are mostly short-term, so the interest rates are only charged during that specific period of time. In contrast with other interest rates, hard money loans aren’t that much more expensive than other financing options.
- Additional fees
Fees for hard money loans will vary from lender to lender, but many investors should expect to pay one or all of the following early-payment penalties, construction draw fees, origination fees, or underwriting fees. As many of these fees are meant to catch you by surprise, you need to ask your lender upfront whether or not they will charge other fees in addition to the interest and the final payment.
- Balloon payment
If you’ve used other methods of financing before, it’s likely that you expect to pay off the loan with individual payments throughout the term of the loan. However, this isn’t typically the case with many hard money loans. Instead of making interest-only payments as an individual might with a standard 30-year mortgage, hard money loan lenders in Sunnyvale, California often require a balloon payment once the loan is due.
Investors that aren’t prepared for this process will likely be caught off guard by the triple whammy of the balloon payment, interest, and additional fees. To better prepare for the repayment of the loan, investors should make plans to either refinance their loan with a traditional mortgage or other refinancing program, extend the life of their loan (at an additional expense), or sell their property.
If all else fails and an investor is unable to pay the loan back, they should speak with their lender. Under certain circumstances, a lender may be willing to work out a solution for that individual. However, if no resolution is reached, the lender will likely foreclose upon the property.
Hard money loans are an invaluable resource to many investors. Ready to see how hard money loans can benefit your business? Make the decision to speak with a lender today.