Hard Money Loan FAQs
- How Do Hard Money Loans Work?
Hard money loans are essentially short-term loans given against the collateral of real estate. This means that the loan is secured by a lien on the property. Such loans are provided by private investors, rather than conventional lenders like commercial banks and credit unions.
Hard money loans typically have a term of 12 to 18 months, although they can be extended for up to 3 years. The borrower is required to make monthly payments, which could comprise of only the interest amount or interest plus a small part of the principal. At the end of the tenure, the borrower needs to make the complete repayment.
Hard money loans are often used for buying and fixing properties with the intention of selling the properties for a significantly higher sum.
- What Questions Should I Ask a Hard Money Lender?
What is the interest rate? This could vary across lenders, geographies and the riskiness of the collateral provided. Typically, the interest rate for hard money loans ranging between 9% to 12% of the loan amount.
What are the points? This refers to the fees charged by hard money lenders. One point is usually equal to a percentage point of the loan. Points typically range between 2% to 3% of the loan amount.
Other key questions to ask are: Are there any upfront fees? Do I need to make a down payment into the project? What are the penalty fees if the repayment extends beyond the due date? How much time will fund disbursement take?
- How Long Does it Take to Get a Hard Money Loan?
Hard money loans are disbursed quickly. The application process usually takes a couple of days, after which the loan is approved. After loan approval, a hard money lender typically transfers the funds within a week. This compares very favorably to bank loans that take 30 to 60 days for funds disbursal. Choose a professional team that can help you get hard money loans faster, which is very important for being ultra-competitive when buying properties.
- Do Hard Money Lenders Check Credit?
Yes, hard money lenders will typically run credit but the loan is not driven by the credit score. There is often a minimum credit score but is much lower than would be typically required by conventional lenders. . they run credit to see if there are any recent to foreclosures, short sales, bankruptcies and charge offs by other creditors. Hard money lenders check these aspects to determine the likelihood of you repaying the loan.
What matter more than your credit is the borrower’s experience and the value of the property. So, it’s important to seek professional help in quickly identifying investable opportunities and creating a plan that works, with realistic timelines.
- Can You Flip Houses With No Money?
When starting any business, it’s best to have some money of your own. When your plan is to fix and flip houses, you can get a loan for 80% to 90% of the purchase price of the property and 100% of the construction as long as the loan amount doesn’t exceed 70-75% of the as repaired value..
- Can You Flip a House With a Hard Money Loan?
Yes, you can. Hard money loans are typically taken for buying, fixing and selling (Flipping) properties. . In order to get the best loan terms, you will need to have experience a strong fix and flip plan. For this, you can partner with a team that can help you identify investable properties, create the fix and flip plan and help you raise the loan for buying the property and funding the repair and renovation.
- Does Flipping Houses Really Work?
The simple answer is yes. Buying real estate, making repairs and selling it off for a profit can be a lucrative business. As with any other business, there are risks. The fixing of the property may take longer or cost more than you had planned. Or you may not get a loan at the most favorable terms or maybe the property sells at a price much lower than you had anticipated. So, it is a great idea to consult with a local professionals and lenders that can help you vet out a deal to make sure it makes financial sense.
- How to Make Money Filling Houses?
In order to make money flipping houses, you need to identify a property that is priced low currently; but will be worth much more after some repairs and renovations are done. The idea is to buy low, spend on making the repairs and finally selling the property at a price that more than covers the cost of purchase and repairs, leaving a profit for you. For making a profit, it is important to analyze properties correctly, securing loans at favorable terms and being able to sell these at a high enough price. It is best to partner with local professionals and lenders that are well versed home rehabilitation and understand the fix/flip market.