Understand Basic Rules of Hard Money Loans
People spend a lot time talking to different lenders, asking them about pros and cons of getting a hard money loan. However, they never care about going out and finding a good deal on an investment pr...
People spend a lot time talking to different lenders, asking them about pros and cons of getting a hard money loan. However, they never care about going out and finding a good deal on an investment property, which is the FIRST and BASIC step in moving towards getting a hard money loan.
The fundamental rule of this business is to have a good deal and if you have that then finding money is easy. But if you don't have the deal, then it is important that you spend some time in finding one, rather than wasting time talking to people.
The reason getting hard money is easy is because you don't need to go through the conventional requirements of showing your credentials, such as job or credit history. Hard money loans are ONLY given on the basis of property you are buying.
That's why, it is better to stay away from the places which will ask for a credit score requirement or bank statements before qualifying for the loan.
A few things which act as a hurdles for those who submit their first application are:
1) The amount of loan you'll get from a lender may be different from what you need.
Hard money lenders usually lend up to 70% of the estimated ARV (After Repair Value) for the property and this amount could be used for purchasing, and possibly rehabbing the property.
They will send independent property evaluators who will determine the ARV. A real lender will consider at least 10 comps before finalizing an ARV for the property you want to invest in.
This could be a bit different then what you have expected. If your purchase price is more than the 70% ARV, then you will have to bridge the difference yourself.
This is the biggest mistake investors make. They think that if a lender is advertising that they will finance 100% of the purchase price and rehab costs, then it would work ever
2) Proper planning for loan fees or origination points.
Hard money lenders are paid on loan points. There's no other way out. They can't fund you for points and it is usually around $1-3 pts. The borrower will have to pay for those closing at the closing table if they want funding. Even if a lender is advertising "no money down", they are basically talking about the loan, which doesn't include points.
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