The Ins and Outs of Working with Hard Money Lenders
If you need to borrow money and you do not have the best credit score, you may find it hard to get a traditional bank loan. The good news is that there are hard money lenders out there who may be able to get you the money you need. The even better news is that you can get a hold of your money much sooner that you would if you went the traditional bank loan route.
Before taking out a loan, look for the best private money lenders in your area. Ask them about their loan terms and interest rates. Look at who will buy and hold hard money loans. Even if you are desperate for money, you need to calmly and objectively look at your options. If you won’t be able to pay them back, don’t take out the loan. Likewise, if the interest rates are too high, think twice. You might find yourself paying far more over the life of the loan than you would ever expect. Ask around for trustworthy lenders and talk to several before making any decisions. This will help you stay safe.
- First, you need to know what “hard money loans” are. The short answer is that these loans are secured with real estate you own. The hard money lenders are private companies and you need to pay the loans back much faster than when you take out a traditional loans. The average time you will be given to pay it all off is about one year. Many people with hard money loans extend the terms of the payback time from two to five years. The amount you pay during the course of the loan can vary.
- You need to know what kind of property will qualify you for a hard money loan. When you go private money lenders, they do not care about your credit history or score, you are putting up property that you own as collateral. Depending on the lender’s preference, you can borrow on homes (they can be single or multi-family homes, industrial space, commercial buildings or just a plot of land. The lenders will want to see the value of your land before they lend you money on it. If you live in the property, you may have more hoops to jump through as there are rules that only pertain to lending money on the borrowers residence. For that reason, many hard money lenders do not offer these kinds of loans.
- Are you a good candidate for a hard money loan? Only you can answer that but there are some reasons people eschew traditional loans for hard money loans because they work better for their situation. For example, if you see a great business deal that you need more cash to invest, the chances are good that you want your money sooner than later. The majority of people who take out hard money loans can get their funds within about a week. Traditional lenders often make you wait between 30 and 45 days. If you will miss out on the deal if you wait, you may want to go the hard money route. Another reason people seek out hard money loans is that they started at the bank and were rejected so they need a hard money loan to come to their rescue.
- Understand how much interest you will pay on a hard money loan. In states where there are a lot of hard money lenders, the interest rates are lower. The area of the country where you want to take out the loan influences what the interest rate you will pay. Often the interest rates on hard money loans are higher than on traditional loans. This is done the lender is taking on more risk than a traditional bank. Make sure you are completely clear on the terms of your loan as the rates can vary greatly from state to state and from one lender to another.
- Make sure you understand the requirements of taking out a hard money loan. The value of the land you will be using for collateral for your loan is important but it is not the only thing that you need to think about. You also need to have a detailed and realistic plan for how you will use the money that you are borrowing and what your plan is for paying back your hard money loan. The more specific and thought out your plans are, the better. For instance, if you plan to invest the loan in a project, you need to show why yours is a good plan to use that money. Lenders want to see detail oriented people who have a decent head on their shoulders.
Many people are wary of working with hard money lenders but you can have a good experience if you pay attention to the details.