With numerous financial institutions and private lending companies claiming to provide real estate financing solutions, finding out which is good for you might be hard. However, when you need a quick loan, or when you can’t be approved for a traditional mortgage, your alternatives are limited. This is where the hard loans come in handy.
What is a hard loan?
This is a real estate financing that is provided by a group of people or a company. Instead of asking for a stellar credit, an excellent property, and verifiable revenue, all you need to get a hard loan is sufficient equity in the property that is used as collateral.
In most cases, that collateral is the real estate project that the investor needs funds for, but the funds might be used for other purposes or to purchase or renovate another property.
When to apply for the hard loan
Once you realize that you need some financial help, you have numerous loan alternatives to consider. Even though hard loans appear to be the easiest and fastest way to get money, you need to know when to get it.
Here are some situations when a hard loan can be the perfect alternative
When you don’t have a stellar credit
Bad credit is one of the reasons why the majority of borrowers fail to get approved for traditional mortgage loans. If bad credit is preventing you from getting a mortgage loan, then you are among the many individuals who have a credit rating of below 601. The majority of banks will not give you a mortgage loan if you have bad credit and this makes the hard loans a perfect alternative. While hard lenders will not check your credit history, it is good to make sure that you have paid your previous lenders as agreed to increase the chances of getting another hard loan.
When you need a quick funding
Traditional mortgage loan application entails a long process. When applying, you fill the form and present all the required paperwork to the loan officer and wait for the application to be reviewed and processed. In cases the application will be approved during the review and processing phase, the application goes to the underwriter. The underwriter will decide whether you are eligible to get the loan or if more info is required.
In case the underwriter agrees to give you the loan, you will handle other details like mortgage insurance when your down payment is less than 20% of the loan. Even after going through all these steps, you will be required a wait for the pre-closing and closing procedure to be finished before getting the cash. All these processes with taking between 30 -60 days and even longer on some occasions, based on how engaged the lender will be at that time. When you need quick funding, waiting for this lengthy procedure is not the best alternative. With a hard loan, you will circumvent all these steps for getting a real estate funding.
When flipping a real estate property
The speed of hard loans makes them perfect for certain conditions when additional funding might be needed. Flipping property is a good example of such situations. Whether you are flipping homes for investment purposes or just making your private residential home, unexpected expenditures will pop up regularly. For instance, you can purchase a house and realize that there is damage that you never budgeted for in the first place. Or the development of your project takes a long period then you expected and you have to pay your contractors for the extra time and pay for the extended equipment rental. When you need funds for your project flipping project, a hard money mortgage loan is an ideal alternative.
When you want to purchase a new property
Even if you have never bought any property before, a hard loan can be still a perfect choice for your real estate financing. In most cases, a greet housing buying opportunity will pop up unexpectedly, and make an offer to snatch it off the market before any other buyer calls for fast funding. A hard loan will be the best alternative to getting the funds to purchase the property that you admire before anyone else.
When you have several properties
Having multiple properties that you lease out can be an ideal way of getting passive income. However, the moment you acquire multiple properties, it hardens your eligibility to get approved for traditional mortgage loans for you to acquire more. The moment an investor owns four mortgaged properties; the majority of banks seems to be reluctant to help them in funding another. This makes the hard money loans the best options.
You already have a loan, but you want more funds
You might be having a loan, but still, find out that you need more money to complete the project. Bear in mind that obtaining another second mortgage is a grievous mistake. For this reason, you need to consider getting a hard loan since it lets you get additional financing from another source, helping you to protect your credit and your investment.
Things you must find out from your lender
A hard loan application is an exercise that might put you in a vulnerable position and make you feel powerless easily. Besides, you are the one who needs the financial help, and if you have had bad experiences in the banks previously, your confidence might have taken a hit.
One that you should know is that, when requesting a hard loan, you have unmatched power than you could think. Additionally, the introduction of alternative lending has allowed those investors who have been turned down by a traditional bank to get the financial assistance they need. However, the old axiom that says information is power remains to be true. There are some things you need to find out from the lender for you to have a great hard money lending experience. Knowing these things will give you the confidence you need and help you secure the loan you want.
Find out if the hard loan lender has a solution for your situation
Given that there are numerous various types of loans and every investor or developer has his or her unique situation, you must ensure that you are taking to the right individual. If it is a hard money loan you need, you will not have to waste your time and energy with a lender who provides regular bank loans. Finding a hard loan lender who specializes in the type of real estate financing you need is of paramount help.
Find out what is the after repair value and current value
If you want funding to finance your real estate project, all you need is to get a fix and flip loan that is also referred to as rehab loan. In this case, make sure you inquire from your lender if the funding is given by the current property or the value of the property after the renovations and repairs are done. Since this will create a huge difference in the amount of loan to be secured, getting the answer in advance will be of paramount help.
Get to know the down payment requirements
When looking for a hard loan to finance your real estate project, loan lenders will need to have the confidence in your investment in the project. Bear in mind that different hard money lenders will have different loan requirements for the minimum down payment you will need to put on a property. This is triggered by the fact that typical down payment will change as the economy. For this reason, you need to make sure that the lender asks for a down payment that you can afford.
Understand the approval process
When looking for a loan, the truth is that you have a cutoff date for when you need the finances. For this reason, you need to work with a lender with a fast approval process to support your project or make an opportunity to sail through. Finding how long the approval process for your real estate financing will take helps you determine if the waiting time will meet your needs.
Make sure you ask about the previous clients
Even though your hard loan lender will never give you specific details about previous clients who have used their services, they must be ready to give you statistics and examples of achievement. Get as many testimonials and instances of client satisfaction as you can. This helps you to get the feel of the hard loan lenders’ reputation. If they are comfortable in sharing this information, then you will know that they are trustworthy.
While you must not know everything when meeting with your hard money lender, creating a list of the unique questions us a perfect way to obtain the information you need. Having a business makes you be on the same playing ground, and you must strive to feel confident in your relationship with your lender.