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How To Get A Hard Money Loan

By on September 27, 2017   /   Blog  
How To Get A Hard Money Loan

How To Get A Hard Money Loan

If you’re searching “How To Get A Hard Money Loan” you’re probably looking to finance a real estate investment project.  There are a number of ways to get funding such as private loans, conventional loans, and hard money loans. In Arizona  each of these options carry their own regulations, guidelines, and are all different.  The application process for a hard money loan vs. a conventional loan from a bank is much different, for example.

Conventional Loan Drawbacks

If this is your first real estate investment or you are a first time borrower, you may think that bank financing is the only way that people get the funding they need.  Conventional bank loans can be very slow and present a number of complications.

Pre-approval Process – Conventional bank loan applications start with a pre-approval process which is followed by requests for virtually every imaginable financial document.  They will typically request copies of your tax returns, bank statements, credit card statements, and will want to know where your down payment is coming from.  If you have money gifted to you or another investor involved in the project they will expect notarized documents attesting to the source of your down payment.

Bank Property Appraisals – Another standard practice of conventional loans is an inspection and appraisal of the property by an agent hired by the bank.  In the case of fix and flip investments banks are typically hesitant to loan based on what a property will be worth after renovations, until the renovations are done.

Lengthy Approval Process – After you have jumped the documentation and appraisal hurdles it can still a month or more until they give you the go ahead on closing the deal on the property.  This means if you have identified a prime home or investment opportunity someone else may be able to get the deal done faster and take the opportunity right out from under you.  This can be an incredibly frustrating experience for investors or potential home buyers.

Restrictive Credit Limitations – Conventional bank loans have much different standards and will not offer financing to people who have bad credit, or no credit.  If you are just starting out and don’t have any credit history, or you have some history that meant bad credit you will most likely be denied a conventional loan.

Hard Money Loan Benefits

Clearly there are limitations to convention loans offered by banks, especially for fix and flip opportunities.  They take longer and are limited by bank conducted property appraisals. Hard money loans offer huge advantages for investors and home buyers.

Much Faster Application Process – The application process requires less documentation and is conducted much more quickly.  The borrower’s financial history will be looked at but more importantly if the borrower is able to produce a down payment and the project’s merits.  Many loan applications can be approved and funded in as little as 7-10 days!  Compared to the month or more that conventional loans you will have a much greater chance of getting the property secured for your real estate investment project, or the home of your dreams.

Greater Fix & Flip Flexibility – Hard money lenders evaluate the feasibility of project to turn a profit based on what it will generate during the renovations or upon completion of the project when it is sold.  The condition of the property is taken into consideration but hard money lenders are not as concerned with the present value of the property as they understand that an integral element of the process is to improvement of the property.   A factor that hard money lenders value is, how quickly a real estate investment will make them back their investment, plus the interest on the loan.  Read more about: Fix And Flip Loans

Funding For Bad Credit – Whether you’ve just started out and don’t have any established credit history or if you have had problems with your credit, hard money lenders have much more flexibility to who they make loans to.  This is a major advantage for a lot of consumers that have unavoidable credit challenges but still want to purchase a home, or want to get involved with real estate investing.

How To Get A Hard Money Loan With Bad Credit

Conventional loans are virtually impossible to get with bad credit, or no credit.  Hard money lenders look more at your ability to pay back the loan and the overall merit of the real estate purchase.  With the right down payment or collateral property people will bad credit are able to purchase the properties they want to live in, or they would like to invest in.  A major advantage of hard money lending is that homebuyers or real estate investors can get funding despite credit challenges.

It’s easy to get a hard money loan and you start by simply filling out a hard money loan application.  Less financial documentation and time is needed to find out if you quality for the loan you need.

How To Get A Hard Money Loan in the Phoenix Valley

If you live in the Phoenix Valley or want to invest in the real estate market in the area Brad Loans by eMortgage is your source for hard money lending.  Our team makes it easy to apply and does our best to get everyone approved for the properties they want to purchase.  We offer financing to a lot of people when banks cannot, or will not offer financing.

To get started simply click: Hard Money Loan Application

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Hard Money Loans With No Money Down Or Down Payment

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What Are Points On A Hard Money Loan?

By on August 21, 2017   /   Blog  
What Are Points On A Hard Money Loan

What Are Points On A Hard Money Loan

If you’re searching the question “What Are Points On A Hard Money Loan?” you are looking for a better understanding of the inner workings of the hard money lending process.  This post is made to help you better understand what points are and how they related to hard money lending.

Fee Based Income on Hard Money Loans

In addition to interest, a hard money loan has other fees charged by the lender. These fees are a source of income for the hard money loan lenders, therefore it is important to fully understand the income sources of lenders so you have a fair negotiation process, which is how you will obtain the best term and rates.

Points:

A percentage of the total loan amount is calculated. One point equals one percent of a loan. Depending on the lender, some hard money lenders will charge points to simplify the closing costs without providing details of separate underwriting fees, or others. Also, some lenders will charge additional points besides these fees. The charged amount will depend on transactions and agreements between the involved parties, risk, complexity and loan-to-value (LTV).

Example:

You have a $500,000 loan, and you are charged 3 points (3%), totally $15,000. These points are often referred to as ‘up front’ points since they are included in closing costs and get disbursed during the tart of your hard money loan, rather than being collected over the span of the loan. However, there are situations when hard money lenders might agree to pay referral fees to another hard money lender for sending you or private investors. Furthermore, lenders might agree on sharing part of the points collected with private investors.

Possible example of up front point distribution:

-$4,000 to private investor for increasing yields

-$3,000 to referring hard money broker

-$8,000 to hard money lender

Underwriting Fees and Other Fees

These fees get charged to you as an additional cost that increase the points of a hard money loan. With private lenders, some will charge them, others will not. Although certain fees just ‘pass through’ hard money lenders, including credit report fees and appraisal fees, others are additional compensation sources.

Example:

Underwriting Fees – This is a flat fee, generally ranging between $750 to $2,500 and is charged to hard money loans. Overall price depends on the complexity. There are cases where this fee gets incorporated in the points charged, but it could also be charged as a separate addition.

Processing Fees – This is a flat rate that is charged for the processing of a loan.

Doc Prep Fees – This is a flat rate charged for the loan document preparation. There are cases when these fees are simply passing through due to hard money lenders using private companies or creating documents, while other times the fee will be a source of additional income for the PML.

Referral Fees

This is an agreed loan percentage or dollar amount between the referred business and hard money lender. If you got referred to the hard money lender, it is likely that referral fees are part of the fees you will be paying to the lender. Because of specialized nature behind private money lending, every hard money lender is not able to provide ‘all things to all clients’. The funds they lend get decided on by investors that they represent. Thus, referral fees are a common factor.

Loan Servicing

This is a fee paid by the investor to a PML, if they are servicing the loan. A PML will retrieve your payment, maintains all required records, then provides you an applicable report. The servicing fee varies; some may be a flat rate while others charge a percentage of a loan balance. For example, 0.25% to 1% of original loan, which is calculated annually and collected monthly.

Late Fees

Another source of income hard money lenders collect are late fees, which occur if you make payments after the specified date within your promissory note. Late fees are often split with an investor (50/50), this is paid upon you paying the fee.

Foreclosure Fees

This fee is generated when a foreclosure occurs, sometimes being paid to a hard money lender, but not always. There are various PML that offer foreclosure services, thus act as a source of profit revenue or hard money lending companies. However, there are other situations where hard money lenders outsource the entire foreclosure service, and do not collect any revenue from foreclosure fees. Usually, this type of income does not get split with investors.

Renewal Fees

This is a fee that you pay for renewing your current loan with mutual consent from a private investor. Investors will likely be willing to renew your loan if you are a quality borrower who pays on time. This maintains their funds earned. Renewal frees are commonly paid by the borrower, either up front or as additional cost to the loan principal.

Each hard money lender has a business structure slightly different than another. The profit revenue may come from a single source, or a combination of the above sources. Keep in mind that nothing is set in stone, and fees of a hard money loan can be negotiated.

By having a better understanding of fees in association with a hard money loan, you will be able to negotiate a better rate for your loan. You can improve negotiation position by having a great track record, low LTV and high collateral, which can result in a much lower cost.

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Phoenix Valley Hard Money Lending

If you’re looking for a hard money loan in the Phoenix Valley, Brad Loans can help.  We finance both investors and owner occupant purchases with up to 100% loan to value with cross collateral.  That means you could get a loan with little to nothing down with the right combination of collateral.  Brad Loans has helped thousands of Arizona residents get the money they need for fix and flips, bridge loans, home purchases, or other real estate endeavors. To learn more about what Brad Loans can do for you fill out a hard money loan application or give us a call at 602-999-9499.

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How Does A Hard Money Loan Work?

By on August 17, 2017   /   hard money loans  

How Does A Hard Money Loan Work

If you wondering “how does a hard money loan work“, this article should help explain what they are, what they can be used for and how to use them. Read more about hard money loans below.

Hard Money Loans

When you hear the words “hard money loan” (or “private money loan”) what’s the first thing that goes through your mind? Some shady looking lender who is conducting business in a dark alley while charging sky high interest rates?

In recent years, there have been some bad lenders that have really gave hard money lending a bad name when a few lenders decided to loan-to-own to people which provided very risky loans to borrowers while using real estate as collateral and they intended to foreclose on the property. Luckily, these hard money lenders don’t exist in this market, although there is still some bad blood in real estate investing for those who haven’t used the services of a reputable hard money lender.

This article will cover the basic of hard money loans, which include:

What Are Hard Money Loans?

Hard money loans are short term loans that are secured by real estate. They are often funded by private investors instead of conventional lenders like credit unions or banks. The terms are for about 12 months but they may be extended to 2 to 5 years. The loan does require monthly payments of interest or some principal and interest with a balloon payment at the end of the loan.

The amount that you can borrow is based on the value of the property. The property has to be one that you already own and wishes to use as collateral or it could be the property that you are trying to buy.

Hard money lenders are mainly worried about the property value instead of your credit, although credit scores are still important to lenders. Those who can’t get a conventional loan because of a short sale or foreclosure can get a hard money loan if they have plenty of equity in the property being used. When a bank says no, a hard money lender may say yes.

Types of Property Hard Money Loans Work Best For

You may get a hard money loan on most types of property which includes single family residential property, commercial, industrial, multi-family residential and land.

There are some hard money loan lenders that specialize in a certain property type like residential and may not be able to do land loans, because they have no experience in that field. Many lenders will have a particular niche that they are comfortable with. Ask which loans that they do.

Most hard money lenders won’t lend on residential properties that are owner occupied due to extra rules and regulations, but there are some that will go through the paperwork with the borrower. Many lenders will do 1st position while fewer will do 2nd position because of the risk.

What Deals Should a Hard Money Loan Be Used For?

A hard money loan isn’t best for all deals. When you are purchasing primary residences with good income history, credit, and there aren’t issues like foreclosures or short sales, conventional loans through a bank are best if the borrower has time to deal with the lengthy approval process. Hard money loans are your source of financing when banks aren’t an option or the loan is needed quickly.

Hard money loans are best for:

  • When real estate investors need to act quick
  • When the buyer has credit issues.
  • Land loans
  • Construction loans
  • Fix and flips

Who Needs a Hard Money Loan?

Real estate investors will often use hard money loans for various reasons. The biggest reason is that the ability of hard money is to fund it quickly. In many situations, hard money can be funded in a week. Compared to the 45 days that it may take for a bank loan. The application for a hard money loan takes about 2 days, in some instances it could be approved in the same day.

The capacity to get subsidizing at a considerably quicker rate than a bank advance is a critical preferred standpoint for a land financial specialist. Particularly when the land speculator is attempting to secure a property with many contending offers, a snappy close with a hard money advance will stand out enough to be noticed and separate their offer from whatever remains of the purchasers offering moderate regular financing.

Another reason a borrower may utilize a hard money loan is that they have been dismissed by the banks for a typical mortgage. Life doesn’t generally go as arranged. Short deals, abandonments, credit issues… they happen. Another vital thing banks need to see is pay history. In the event that a potential borrower as of late began another employment, the bank may deny the loan ask for because of lacking salary history, regardless of the possibility that the borrower makes a sound pay. Hard money banks can look past these issues as long the advance be reimbursed and the borrower has enough value put resources into the property.

Interest Rates and Points For a Hard Money Loan

The financing costs and focuses charged by hard money loan specialists will shift from bank to moneylender and will likewise fluctuate from district to locale. For instance, hard money loan specialists in California by and large have bring down rates than different parts of the nation since California has numerous hard money loaning firms. Expanded rivalry prompts an abatement in costs.

Hard money moneylenders go out on a limb with their loans contrasted with an ordinary bank advance. Because of this higher hazard required on a hard money loan, the financing costs for a hard money advance will be higher than typical mortgages. Financing costs for hard money advances extend from 10 – 15% relying upon the particular moneylender and the apparent danger of the loan. Focuses can go somewhere in the range of 2 – 4% of the aggregate sum loaned. The financing costs and focuses may shift significantly contingent upon the loan to esteem proportion.

Hard Money Loan to Value Ratios

The credit sum the hard cash bank can loan is controlled by the proportion of advance sum isolated by the estimation of property. This is known as the credit to esteem (LTV). Numerous hard cash moneylenders will loan up to 65 – 75% of the present estimation of the property. A few loan specialists will loan in light of the after repair esteem (ARV) which is the evaluated estimation of the property after the borrower has enhanced the property. This makes a less secure credit from the hard cash moneylender’s point of view, in light of the fact that the measure of capital put in by the loan specialist increments and the measure of capital contributed by the borrower diminishes. This expanded hazard will make the hard cash loan specialist charge a higher financing cost.

There are some hard cash loan specialists who will loan a high level of the ARV and will even back the recovery costs. This may sound incredible from the borrower’s perspective in the first place, however these sorts of credits have a substantially higher hazard included and the loan fee and focuses will be MUCH higher. Expect 15 – 18% intrigue and 5 – 6 focuses when a bank finances an advance with practically zero up front installment from the borrower. Sometimes, it might be advantageous for the borrower to pay these over the top rates with a specific end goal to secure the arrangement in the event that they can in any case produce benefit from the venture.

Borrower Requirements for Hard Money Loans

As talked about before, hard cash moneylenders are principally worried about the measure of value the borrower has put resources into the property that will be utilized as guarantee. They are less worried about the borrower’s FICO score. Issues on a borrower’s record, for example, an abandonment or short deal can be disregarded if the borrower has the money to pay the enthusiasm on the advance.

The hard cash loan specialist should likewise consider the borrower’s arrangement for the property. The borrower must present a sensible arrangement that shows how they plan to at last result the credit. Generally, this is enhancing the property and offering it or acquiring long haul financing later on.

Finding a Hard Money Lender to Work With

There are a lot of different ways to find a good hard money lender. One way is to do a Google search for hard money lenders in your area. There will be other companies in the search results as well as lists made by other people. This provides plenty of lenders to start contacting and checking out.

You can also try attending a local real estate investor club meeting. These meetings are in many cities and are well attended by hard money lenders looking to network with buyers. If no lenders are present at the meeting, ask other investors if they have a lender to recommend. Conventional mortgage brokers, real estate brokers, and other professionals can help to recommend a hard money lender. Check your network and see who is recommended.

Once you have a few on your list, start contacting them and find the best lender for your deal.

Conclusion

We hope that this article has given you enough information and confidence to consider hard money lenders and loans for a future estate deal. The higher interest rates may seem a bit scary, but the benefits of getting a loan quickly and being able to get financing when everyone else has said no is well worth it. Brad Loans by eMortage is a hard money lender in Phoenix, Arizona offering hard money loans to residential and commercial property buyers.

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