When To Use Hard Money For Real Estate
Using hard money for real estate can make a lot of sense. However, it’s important you have an understanding of just what hard money loans entails beforehand. Real estate purchases, for any reason, involve several financing steps.
Using a hard money loan requires you to incorporate the loan into the process. In this way, you will have a fuller understanding of if the loan is right for you. Here is more on how hard money loans work and how to use them for real estate.
How Hard Money Lending Works
A hard money loan is a short-term loan from a private lender that looks at the property you’re purchasing to make its decision. Instead of your credit score, the hard money lender will use the value of the property.
It’s a service many real estate professionals take advantage of. Nevertheless, these types of loans aren’t for everybody. To take the most advantage of a hard money loan, you will need to do some research.
What You Can Use a Hard Money Loan For
Hard money loans work best as investment vehicles. These types of loans can help someone purchase a property quickly without going through the traditional mortgage lending channels. These loans are ideal for people having trouble obtaining a mortgage, but who knows they can make good on the loan.
People who take hard money loans will usually use the loan to purchase a property, renovate it, then resell it. Contractors, investors, and house “flippers” will often use a hard money loan. They know they will resell quickly and make a profit.
What Separates Hard Money Loans from Others
As stated, hard money loans are typically based on the value of the property. More importantly, the lender will consider the after-repair value or the eventual value of the property after you’re done with it.
Hard money loans are short-term loans. These loans are nothing like traditional mortgages with their decades-long time spans. Instead, you’re expected to repay the loan in as little as 6 to 18 months.
Beyond those considerations, it’s important to remember hard money lenders are private lenders. That means each person or group that offers such loans will have their own criteria concerning how you use and repay the loan.
Is a Hard Money Loan Right for You?
A hard money loan is ideal when used in the right way. These loans are only for those who know exactly what they’re doing. Generally, you should consider a hard money loan if you need to make a real estate purchase quickly but can’t or are unwilling to go through the traditional real estate financing process.
Dealing with private lenders also offers far more flexibility. You can negotiate with a private lender where a bank may give you flat loan terms. If you’re trying to remain competitive, hard money loans will allow you to edge out competition by giving you the means to move quickly on investment property.
The benefits of a hard money loan may make one seem right for you, That’s why it is so important to understand these type of loans.
How to Get the Most out of a Hard Money Loan
To make the most of a hard money loan despite the inherent caveats, there are several things you should do.
Have a plan – You should have a plan in place for using the loan and paying it back.
Work on a budget including the loan and fees – If you plan to use a hard money loan, include it in your budgeting. Try to include a loan with as high a rate as you can, then see if your plan can accommodate it. This will put you in a good position when you actually seek out a hard money lender.
Always negotiate – Every percentage point you can drop or fee you can lower will mean more profit for you in the end.
With a plan, you can borrow with confidence. This will also put you in a position to more comfortably borrow in the future for the next project.
Finding Hard Money Loans
Hard money lenders are out there. Like most lending institutions, these lenders are not all the same. Research local lenders, contact them and listen to their terms. It helps to seek out lenders who have a history with lending for the types of investment property you need a loan for.
Hard money for real estate works, and many property investors are starting to use them more and more. At Wildcat Lending, we make the hard money process easy for those who need it. You can learn more on the site, or apply right now.