What You Need for a Hard Money Loan in 2019

If you are involved in real estate investing, you probably have heard about hard money loans. What do you need to get a hard money loan in 2019? First, let's cover some of the basics about these unique loans.

A hard money loan is a short-term loan that is secured by a piece of real estate. Hard money loans are funded by private investors, rather than banks and credit unions. The term for a hard money loan is usually 12 to 24 months, but some can be extended up to five years. A hard money loan has monthly payments of interest only in most cases.

Unlike conventional mortgage loans that are based upon your income and credit, hard money loans are mostly based upon the value of the property.

You can get a hard money loan on most types of property, such as single family residential, multifamily residential, commercial, land and industrial.

Some hard money lenders may focus on a certain property type, such as residential single family, and may not do land loans as they do not have experience in this niche. Most hard money lenders have a certain niche of loans where they prefer to do business.

Many hard money lenders will not lend on a residential property that is owner occupied because of new Dodd Frank rules. All hard money lenders will do a loan in the first position, but fewer will do the 2nd position because it is a higher risk for the lender.

Note that hard money loans are not right for all deals. If you are buying your primary residence with solid credit, income and you do not have past credit problems, you should be about to obtain conventional funding. Hard money is where you go when banks will not lend on a property or you need the money fast.

Hard money loans are best suited for fix and flips, land loans, construction loans and when the buyer has credit problems. Hard money may not be the best fit for a buy and hold property because of the high interest rate.

Real estate investors may use hard money loans for a variety of reasons. The major reason they use hard money is the deal can be funded in a week. On the other hand, it can take 4-6 weeks to get a bank loan underwritten. The application for a hard money loan may take a day, and the loan pay be approved that day.

Being able to get funding quick is very important for an active real estate investor. If you are trying to buy a property where there are 10 other bids, you want to have your cash lined up ASAP so you can get that deal.

Borrowers may opt for a hard money loan as well because they cannot get a conventional loan due to income and/or credit troubles. Also, banks need to see a stable income history to issue a loan. If you just started a new job, the bank may decline your application.

Because of the higher risk on hard money loans, you can expect an interest rate of 10-15%, and you may have to pay 2-4 points of the total loan amount.

Many hard money lenders will lend up to 75% of the value of the property. So you can expect that you will need to pony up some cash to get the loan funded. Some hard money lenders may finance most of the cost of the home plus rehab costs, but you will pay a higher rate in the 18% range and pay 5-6 points when you have no downpayment.

A hard money lender can be a viable option for doing real estate deals when you need to have a deal funded quickly. Just note that you will pay a higher rate, and you will probably have to come up with more money to put down.

References

https://retipster.com/hard-money-101-everything-need-know-getting-started-hard-money-loans/