A hard money loan is a type of real estate loan a person borrows without going through traditional lenders like a mortgage lender or bank. The money comes from private investors. That’s why sometimes hard money loans are referred to as private investor loans. The process of getting a hard money loan is fast. A lender can generally provide loan funds within 72 hours of receiving all documents from the real estate investor. The following are some frequently asked questions about hard money loans:
Is the Interest Higher with a Hard Money Loan than a Conventional Bank Loan?
Interest rates vary depending on the lender, but they may be higher than a conventional bank or mortgage lender. Interest rates generally range from 10 percent to 18 percent annual interest due each month on the loan. Some lenders will put the interest payments at the end of the loan to benefit investors who are rehabbing property.
How Long is the Repayment Plan on a Hard Money Loan?
Repayment terms are shorter than a traditional bank loan. It ranges from three months to 12 months depending on the investor’s need and lender. However, repayments terms are no longer than five years. The longer the repayment terms, the higher the interest rate.
Can an Investor Get a Hard Money Loan without Good Credit?
Yes. A lender often looks at an investor’s check. They are not looking for credit scores, but to check for things that negatively impact credit scores like foreclosures, collections, bankruptcies and charge offs. Those things won’t stop an investor from obtaining a hard money loan. The lenders base their decisions on a variety of factors like the property value and the investor’s ability to repay.
How Does the Hard Money Lending Process Work?
The process of getting harm money loans vary from lender to lender. However, it generally takes about nine steps to complete. For instance, the first step is finding a hard money lender. The next step is to arrange a meeting with the lender. The goal of the meeting is to determine the type of investment property the specialize in funding or if they’ve worked on similar projects.
Once there is a meeting of the minds, a contract is prepared. The next step is to let the lender know the contract price. Generally, lenders will fund about 70 percent of the property’s value. The remaining amount is up to you to fund. It’s helpful to have the remaining amount on hand already.
Have the property appraised. Prepare and provide any additional documents needed like pay stubs and W-2s. The hardest step may be the next part. The investor must wait for approval. Have an attorney look over the document.
The last step is the closing. This is done in an attorney’s office. The lender places the money in escrow at its title company. The title company will complete all paperwork before issuing a check to the investor.
Hard Money Loans are Perfect for the Investors who cannot Obtain a Bank Loan
Hard money loans are ideal for anyone needing a short term, but lack good credit. These short-term loans are fast, flexible and lender provide fast approval.