Whenever a real estate investor is looking to acquire property, they will sometimes receive a type of financing known as hard money. With hard money loans investors can purchase a property from a lender with the intent on paying off the entire mortgage balance within a short period of time. As an investor and a lender, it is important to know five things about hard money loans so that you can compete with other lenders in your area.
- SHORTER TERMS AND HIGHER INTEREST RATES
One of the things that you must know as an investor and Greensboro hard money lenders is that the terms of the loan are short. Unlike a traditional mortgage, hard money loans are usually required to be paid off within one to three years. Since this is a significantly shorter period of time, lenders must think about charging reasonable rates so that borrowers can pay them off on time. Another aspect of hard money loans is that the interest rates are higher. Most hard money loans have rates that range between 8% and 16%.
- FASTER TURNAROUND
Another key characteristic of hard money loans is that they provide a faster access to capital. Investors are able to get hundreds of thousands of dollars within one day. With quick processing and same day approvals, investors are able to get the money they need to purchase a property right away. With the fast approval, investors can purchase property based on the value of the property instead of their personal wealth, credit and income. As a result Greensboro hard money lenders will benefit if they offer a faster turnaround for loans to investors.
- SUBMITTED PAPERWORK
Hard money lenders have their own unique criteria in terms of borrower credit scores, debt to income ratios and financial profiles. When an investor is looking to get a hard money loan, they will benefit most by submitting documents that break down the expected renovations and an analysis of the property value after making repairs. When accepting paperwork from investors, hard money lenders will want to receive an appraisal of the property, a sales contract, repair estimates and also bank statements and recent tax returns of the investor.
- LOANS CAP AT 70%
Whenever an investor is looking to get a hard money loan there is a limit on how much they can get in financing. Hard money lenders usually offer 70% of the property value. As a result, investors will often have to come up with a higher down payment compared to a conventional loan. This higher down payment is required so that lenders can have a cushion in case of a default or missed payments. It will also help with paying any costs associated with foreclosing on the property. For hard money lenders who are looking to be competitive, they will need to understand that it is important to provide up to 70% of the property value so that they can ensure timely payments.
- LENDERS WANT BORROWERS TO INVEST MORE
Hard money lenders usually expect investors to invest quite a bit of money into a given project. They are often required to put down at least 30% of the property value up front. With a high down payment, an investor will prove to the hard money lender that they are serious about buying the property. It also allows the lender to have more security in terms of covering any potential losses. For hard money lenders who are looking to succeed, they will want to make sure that their investor clients have plenty of capital up front to invest so that they can be sure that they are working with an investor who has a minimal amount of debt on the property.