Ever since the economic depression began in the Unites States quite a few real estate individuals have entered the home flipping market in expectation of producing a return. But, not all have enough money laying around to invest, so they turn to hard money loan merchants. Hard money financing can be provided by hard money lenders for these real estate individuals. The investor can use this money to buy a home or other property in order to flip it (buy and sell for profit). Hard money lenders use different procedures for lending and thus are different than banks.
Hard money loans are short term in duration and are granted by individuals or private companies. This loan has a different set of requirements than a typical real estate loan from a bank. They have less stringent rules and the interest rates are much higher. Even after paying back the loan a real estate investor stands to make a large income. Depending on the lender, the repayment terms can be different.
To obtain a hard money loan, one must first research hard money lenders. You can find lenders through the internet, word of mouth, or from local ads. After you select a hard money lender you can begin the application process. Less attention is paid to the credit of borrowers but nevertheless lenders need to protect their funding. At the lender’s discretion, a variety of documents may be requested such as bank statements, check stubs, or tax returns. But it varies between lenders which documents they ask for. These loans are generally granted much faster than a conventional bank loan.
It is important to understand the disadvantages of using a hard money lender versus a traditional bank. Hard money lenders charge different interest rates. Typically one can expect an annual rate of 10% to 20%. Loans can be for a variety of durations but usually are short term, from a couple months to a few years. The property used in a hard money loan will generally be flipped in less than a year to make as much money as possible. Upfront fees may be charged in addiction to the interest rate charges.
The amount that one can borrow also varies. It is usually dependent on the property that the money is being used to purchase. Factors that are looked at are the cost to purchase the property, the amount of money it will cost to repair the property, and the value of the finished house. The hard money lender wil base the amount they are willing to loan you based on the final value of the house. After all the costs of an investment property are accounted for, the real estate investor can determine if he will make a profit on the deal using a hard money loan.
If a real estate investor decides a hard money lender is the best route for the property, they need to do their research, make sure the hard money lender is reputable, and it also helps to check with their state regulations. Some states do not allow hard money lenders to operate, unfortunately, so you would want to be aware of this.
For more information about hard money lenders see Stephen Von’s site. You can learn how to get a hard money loan for your particular need.