When it comes to financing your new home mortgage, you need to understand the different options available. There are the traditional financing options, but you can also take advantage of hard money loans. These hard money loans can be obtained from individual investors or an investor group.
What makes them appealing is that they are less focused on your credit score and more on the collateral of your property. Here are 5 of the most important pieces of information for home buyers or investors considering a hard money loan.
Knowing What is a Hard Money Loan
A hard money loan is a short-term loan secured by real estate and funded by private investors. The terms are typically anywhere from 2 to 5 years, with monthly payments of only interest or payments that are a mix of interest and principal. However, you are also going to have a balloon payment at the end of the term.
If you have less than perfect credit, this type of loan can be helpful in building your credit. At the same time, you will need to be able to pay off the balance in full or refinance the property.
Is it Useful for Investment Properties
Building a real estate investment portfolio? Consider using a hard money lender. They can give you the funds for a property that might not qualify for a traditional loan. Then you can make repairs and updates that will allow you to refinance it through a traditional funding source.
The types of properties you can purchase include single-family, residential, multi-family residential, commercial, land, and industrial. Most hard money lenders will not lend on owner-occupied properties.
Types of Scenarios for Hard Money Lending
Hard money loans should be considered when banks are not an option, or the loan is needed within a tight time frame. This type of loan is also ideal for investors, having an interest only loan is desired or where little funding is needed because tangible cash is readily available to cover a majority of the cost and the repayment will be short term.
Interest Rates
When dealing with a hard money lender, it is important to remember that they are typically taking on more risk. Therefore, that risk can be reflected in a higher interest rate, however, keep in mind, if your credit isn’t great but the home has value, a hard money loan is a better option than a traditional loan as real estate is often weighed heavier in these types of transactions. In California, there are more hard money lenders, which are reflected in the pricing. As a local San Diego lender, our goal is to provide a reasonable interest rate and outstanding customer service.
Another benefit is that interest rates often are a fixed rate, making it a viable option for investments.
Fast Closing Options
The other factor to keep in mind is that hard money lenders tend to be able to underwrite and fund your loan in a matter of days. In many cases, there is no third-party go between, so it can make the terms more reasonable.
As a real estate investor or new home buyer, you need to have an understanding of all your options. Hard money lenders can be one of those means to build your business, as long as you understand all the financing options available. If you are interested in a potential hard money loan to finance your next real estate investment, then contact us today.