Investors find it challenging enough to find a good financing for their projects. Securing a capital is necessary for rehabbers before they can start renovating a home for rental or sale eventually, and to acquire the property, cover listing fees, and many other expenses that are necessary. In order for fix-and-flip investors to fund their projects, they would rely on securing hard money loans. The advantage of doing business with hard money lenders is that they specialize in serving fix-and-flip investors and they would usually offer them a much quicker turnaround and a lot more financing options that you can’t avail from traditional banks. Below are things you have to know about hard money loans.
Hard money loans have higher rates but shorter terms compared to traditional bank loans.
You should know for a fact that hard money lenders offer different terms. However, you can be sure that these types of loans have quite a lot shorter terms compared to traditional bank mortgages and they have maturities that would usually range from one to three years. Lenders will be anticipating on the rehabber’s completion of renovation work as well as having been able to re-sell their properties before their loans are due and will use such proceeds to be able to pay back their loans. The loans work in a way that monthly interest payments will be secured during renovation and once the home is sold, principal will then become due. Because hard money loans come in shorter terms, you can expect it to have higher interest rates compared to conventional mortgages.
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One major advantage of hard money loans that conventional bank financing can’t offer is a faster access to capital. The process involved in hard money loans is quick and some lenders would even provide loan approvals on the same day. You can even expect funds to be dispersed rapidly which is usually done within days of approval. Fix-and-flip investors enjoy a fast turnaround on these loans while also enjoying a distinct advantage as they compete with other buyers. Also, when it comes to hard money loans, lenders will focus mostly on the property’s value and not so much about the wealth of the borrower. Rehabbers will still be able to avail of hard money loan even if they don’t have a perfect credit score or if they have experienced foreclosure before or even bankruptcy just as long as they have proven skills and are seeking to finance a property.
Another advantage of hard money loans is versatility. Being one of the fix-and-flip investors, you can actually amplify profit opportunities with hard money loans if you cover more types of properties.