Loans are crucial for financing developments as well as emergencies. You may need refurbishing your property for sale or completing a project, but depletion of finances won’t allow you. You will probably think of getting a loan and thoughts of the banks will trickle in. Sometimes it can be challenging to secure financing from a bank due to various reasons. Feel troubled? Your project won’t stall; you can get private money lenders to finance the project to completion. Here is what you ought to know when shopping around for hard money lenders.
1. Hard money loan requirements
Traditional banks have various requirements that can be a limitation to obtaining loans. For hard money lenders, the conditions before one is given credit are relatively lean. The requirements will determine whether you qualify for a loan or not. While requirements may vary from one lender to another, critical in the process is the value of the property at stake. The valuation will further determine the amount of hard money that you can receive. A typical requirement list for a hard money loan will include the type of property, geographical location working experience with flips and the intent of the property. Such will determine your credit score, and it is vital that you assess this before going shopping.
2. Shorter terms and higher interest rates
Lack of proper loan security is one of the primary reasons why hard money lenders are frequented. You will be able to get financing for your project without much documentation and guarantee. As such, the loan is highly risky and is accompanied by a shorter repayment time to evade the possibility of defaulting. Often, the maturity period range between one and three years. Before going for a hard money loan, you have to put in place mechanisms that will ensure you make prompt repayments. Sometimes, hard money lenders will give an option of paying monthly interest and ultimately a balloon payment of the principal. Due to the short repayment period interests are relatively high compared to conventional bank loans.
3. You can expect a faster turnaround
Hard money gets processed far much quicker than the bank loans; hence it is ideal for a fix and flips investor. When shopping for a hard loan, you should ensure that they can deliver the loan in good time. This allows you to get a competitive edge over other investors eying the same investment. Hard money lenders are advantageous where faster access to capital is required. Besides, it offers exceptional versatility.
4. Loan amount capping
When you are searching for a hard money agency, you should establish the amount they can offer you to finance the project at hand. Since hard money lenders are thought to deal with borrowers of not very good credit score, they have to cushion the risk. You will find most lenders limiting the amount they offer as loans to the clients at 60-70% the value of the property in question. In your search for hard money, you need to get clarification on how much they are willing to offer you and evaluate if it can cater to your needs.