Hard Money Real Estate Loans and Why You Need One
When funding a real estate project, traditional lenders are concerned with your ability to perform on the loan. They take into account your credit rating, employment history, ratios, and more. A hard money lender will focus mostly on the wholesale value of the property in question. Because these loans can be pretty risky, they usually come with a higher interest rate. Some people are initially turned off by the rates, but they’re worth it. If you’re looking to do a fix and flip project, and the place you found is a total wreck, there’s basically no chance a traditional lender will give you the money. You can’t pay for it out of pocket, but you’ve done your homework and found out that the property could be worth almost three times what it’s selling for now in great condition. This is where a hard money lender comes in.
These lenders will provide you a loan for the purchase price of the property, but also for the cost of repairs. When you go to the closing to buy the property, you not only walk away with the keys, you also walk away with a check to fix the place up. You won’t have to make any payments for the first six to twelve months (depending on your lender’s policies). Once the property is all finished and repaired you can either sell it at the enhanced market value and pay off your lender (keeping a nice profit) or you can refinance your property with a conventional loan now that it qualifies for traditional financing (and then pay off your hard money lender with the new loan).
Why use a hard money lender? Because:
● Your credit isn’t high enough to qualify for traditional funding
● The property you want to purchase has definitely seen better days and your bank won’t lend on it
● You can obtain a traditional loan but don’t have the cash to make repairs/improvements
● You need to close on a deal soon, and hard money lenders can get you approval relatively fast
If you think that a hard money loan could benefit you, check out HardMoney GMA for more information.