Receiving Your First Hard Money Loan

Receiving Your First Hard Money Loan Phoenix AZ

This post is especially for NEW INVESTORS. However, any investor who plans to fund a deal with a hard money loan will benefit from the information here.

A Hard Money Loan for Your First Deal

Your first deal as a real estate investor is the most important deal of your career. It’s the deal that gets your foot in the door of the real estate investing game. For most new investors, the success of that first deal is going to depend on whether or not you get a hard money loan to fund it.

“Why a Hard Money Loan for My First Deal?”

That’s a great question! Answer: Hard money loans are almost always the only type of loan that new investors can get for their first deal or two until they build some capital.

That being said about using a hard money loan for your first deal . . . I suggest that you think like a tourist when you invest.

New Investors Should Think Like Tourists

Going on vacation involves a lot of planning, and the most important part to figure out before you go on vacation is where to go. Planning your first real estate investment deal is exactly the same. Where you invest is the most important part of your planning.

The reason? Just like with your vacation, you want to make sure that you get the most bang for your buck when you invest. We’re all probably well-aware that some places are hotter for real estate investing than others because of market conditions. So, that’s the first part of it.

The other part may not be as familiar to you . . . Did you know that some states are better than others for getting approved for a hard money loan?

It’s true. Most of it has to do with lending and real estate laws that differ from state to state. Some of these laws are hostile to the real estate investing and hard money lending processes — stuff we can blame our congressmen/women for.

So even if you find a really killer deal in some states, you could end up flat on your face with no way to get the funding you need, unless you know the best places to invest in real estate when it comes to hard money loan approval.

The Best Places to Invest in Real Estate

Simply put, the best places for new investors to invest are states where the markets are good and where you have the best chances to get approved for your hard money loan.
Here are those states: Arizona, Colorado, Georgia, Nevada, North Carolina, Oregon, Texas, Virginia, and Washington. These are the best states to invest in for new investors. Stick to these ones, and you can count on hot markets, good deals, and easy hard money loan approval.

What Other Hard Money Lenders “Forget” to Tell You

  • I could get a lot of flak from other hard money lenders out there for telling you this, but I don’t care.
  • I’m sick and tired of hearing about hard money lenders who take advantage of investors (especially new investors) by feeding them mis-information about what it takes to close a deal.
  • Sometimes it’s even worse when they give no information at all.
  • All they want is to get the investor’s money, so they conveniently “forget” to inform them of some of the most critical realities of real estate investing.
  • I’m talking specifically about the starting money that investors need to make a deal, expenses not covered by the loans used to purchase the property.
  • (Yes, in addition to these loans, you need other monies to fund your deal. If this comes as a surprise to you, then you are exactly why were writing this post.)

Three Types of 100% Financing

Chances are that you didn’t even know there are 3 different kinds of 100% financing for real estate investment deals.

Don’t feel bad. It’s not your fault. The reason for the obscurity on this topic is because nobody ever talks about it. So I’m going to spell it out here once and for all.

As you probably do know, the majority of hard money loans cover somewhere between 60% and 75% of the property value or after repair value of the property. If the deal you found is a slammin’ one — such as the case with my caller the other day — a hard money lender might choose to finance the deal 100%. This leads into the first type of 100% financing.

Type #1 – This first type of 100% financing covers 100% of the purchase price of the property. But that’s it. You still have to pay for repair costs, closing costs, earnest money and all those other fees on your own. This type is what most lenders mean when they use the phrase “100% financing.”

Type #2 – Very rarely, and only if your deal is a really really slammin’ one, a hard money lender may finance repair costs and the closing costs in addition to the purchase price of the property. The investor must still bring what I call “starting money” (earnest money, evaluation fees, inspection fees, etc.) to the table.

Type #3 – The Holy Grail of investment financing! True 100% financing for everything — purchase price, rehab/repair costs, closing costs and all those starting money items. This financing option is the only way for investors to get into deals without any money of their own whatsoever, and practically nobody offers it. (But we do.)

With that wind-up you’re probably dying to hear about how we accomplish true 100% financing for our clients. I’m going to explain that in just a minute, but first I have something important to say about starting money.

Turn $1,000 Dollars into $10,000

Here’s a table that itemizes those things for you:

Common Starting Money Items
Item Cost
Earnest Money $500 – $1,000
Evaluation $600
Inspection $500
Total: $1,600 – $2,100

Starting money. This is the term that I use for earnest money, evaluation costs, inspection fees and other expenses that investors almost always have to fund for themselves.

These expenses are the most commonly overlooked aspects of every real estate investment deal.

It is possible to get a true 100% financing option to cover these expenses. This is especially helpful for new investors who don’t have their own starting money.

However, the majority of investors out there will have to cover these costs themselves on most deals.

If you’re making a lot of offers or planning to make a lot of offers, doing some simple math in your head should tell you that these costs can add up fast. For many investors, lack of start up money is the number one thing holding them back from making more offers.  To get the money you need, faster than the competition, consider a hard money loan from Brad Loans.

Purchase Rentals In Phoenix, AZ With No Money Down Using Hard Money Refinancing

How To Purchase Rentals With No Money Down Hard Money Loans

Real estate is often accomplished by investors through a short term loan. A short term loan is the solution to purchasing rental properties and also fix and flip homes. It is also used in purchasing homes as rental properties until a long term financing can be found.

The use of hard money will more than likely be expensive, even more than what traditional financing would be, and it is best to have some short term financing to use. However, many investors find a hard loan as a terrific option, yet, this is going to cover short term financing options as well. You can also use a conventional refinance loan for purchasing rental properties without having to have the money to put anything down.

Hard money loans, what are they?

A hard money loan is something that helps an investor to purchase rental properties for a short term, usually six months or less. They will have different terms than the traditional bank loans do. Those who lend out hard money loans are going to have a much higher interest rate, with an interest rate of twelve to sixteen percent, plus points for the money they loan you. For those who do not understand what points are, it is a percentage of the amount of the original loan and accumulates other charges and can accumulate as much as four points rather quickly.

Is there any certain reasons that an investor would use hard money to purchase property?

Investor will choose to go through an investment to purchase a rental property with a hard money loan because the lender may be willing to cover the entire amount of the loan plus what it is going to cost them for the repairs, referred to as the after repair value (ARV). These lenders are willing to loan the investor as much as sixty-five to seventy percent of the ARV, you need to remember that that is not the purchase price, it is the price the house will be worth after it has been flipped.

So, how does the lender make their money off of a hard money deal?

For instance, an investor purchases a home for $60,000 and the after repair value is $130,000, the lender is going to loan the investor up to seventy percent of the after repair value of the property. This means that the lender is going to loan the investor up to $91,000 on the property based on the after repair value. Estimates of all repairs have to have bids and receipts and the lender will cover those costs as part of the hard money loan.

The lender is going to be paying twenty-five percent of the repairs at the closing and the rest of the payments will then be in twenty-five percent increments as each repair is finished. The loan principle, interest, and points will be paid in one lump sum after the house has been sold. The lender isn’t going to charge any interest until after the house is sold, however, the lender in this case is going to charge a fifteen percent interest along with the four points, which they are willing to reduce the points paid if you do some deals with them.

When dealing with a hard money lender the cost to you can add up quickly. The interest alone for this deal is going to cost you $6m825 plus the points is already $3,640 for a six month loan. You may find a hard money lender that is will to lower the charges on interest and points, of course these are going to want you to share the profits evenly with them.

Personally, I never use a hard money loan, but the options are there for those who have no other options.

How do you locate hard money lenders?

Hard money lenders are out there, many of them will only do business in certain states, while others may do business across the nation. Begin by searching on the internet for a hard money lender in the same state you live in, using any of the search engines. Here is a few hard money lenders in case you would like to talk with more than one: Located in Phoenix, AZ is the Brad Loans, and there are the Private Money VS. Hard Money for Investment Properties.

What is Private Money VS. Hard Money for Invest properties?

Private money is when you are getting the money from someone, not from a mortgage co. Or a bank, or any other type of lender but from a person. Sometimes a regular person will loan the money needed for real estate property, especially right now, with interest rates as low as they are. Right now the average interest rate on a CD is under one percent. No one can keep up with the ongoing inflation with the interest so low. While the wealthy is now looking for higher yield investments while they are still secure others are buying up properties. By loaning out to investors could be the perfect thing for them at this time, increasing their investment returns and helping investors out, this is called Private Money Loans.

How would you go about locating Private Money investors?

The hardest issue with private money is locating someone that will loan you the money. If you go online you can find many websites that say that are private lenders and that you can borrow money for a fee. From personal experience, this is not the way to go about it as you don’t never know if they are just going to take your money and give you the name of hard money lender or what. Private money lenders are more cautious than that and they only want to do business with people they know they can trust.

The best private money loans comes from someone you know and can trust. For instance, My private money loans have been coming from my sister, she uses her profit returns towards the increase of her son’s college fund. And she will lend me the money for an eight percent rate which is reasonable, without any points added in there. She knows that I know what I am doing and that I am going to be honest with her. This is a lot cheaper than financing with hard money.

Can I purchase rental property with hard money without having any money to put down?

You can refinance a hard money loan if you used a hard money loan to also finance any repairs, using the Fannie guidelines, of course it has to be with a seasoning period. There is not cash out refinance allowed it you do not have a seasoning period. This gives the home a higher loan amount than its original cost since the repairs have also been financed. It means that you will be able to get the long term loan to take the place of a hard money loan and don’t have to wait around as you would if it was a hard money loan.

For instance, you purchase a rental property for $100,000 using a hard money loan of one-hundred percent of the purchase price with another $35,000 financed for repairs, making it a total of $135,000 in loans then you refinance after the home has been repaired using a Fannie loan making the loan amount go up to seventy-five percent of the new appraised value. The if the new value is appraised at $185,000 the amount that you could refinance would be $135,000 but according to the Fannie guidelines you cannot cash out a refinance. However, the original amount loaned to you by the hard money lender could be refinanced.

Going this route tends to be more expensive because it has a higher interest rate, then there are the added points, and the costs of the refinancing with Fannie Mae, but keeping in mind that you have just purchased a long term rent property, repaired it, and had almost no out of pocket expenses.

The use of traditional banking for financing short term loan with an investment property:

Investors can find banks that are willing to give them a short term loan, although they can be hard to locate and usually the investor will already have a good standing with the bank. Our short term loans are done through a portfolio lender to finance our short term investments. The portfolio lender will have an interest rate of about 5.25 percent, with 1.5 percent on the loan. This means we can get up to a seventy-five percent loan on the original value of the purchase price, but we can complete the loan process in a couple of weeks. There were times in the past that a bank would finance these loans at a hundred percent of the value and the funds would be ready on the same day, but, not any longer.

Lines of credit are offer by traditional banks, however, they are not referred to as short term loans. Those banks will usually want something such as real estate or other value property for collateral before giving anyone a line of credit. So, if you have a home and you have equity in it you should be able to get a line of credit. The bank I deal with charges a five percent interest rate and allow up to ninety percent towards the value of my residence, and I can get up to eighty percent on investment properties.

Give us a call today if you are interested in hard money loans for fix and flip, finishing construction, refinancing your mortgage, buying land, or need loans for other investment opportunities but have bad or no credit. Give Brad Loans a call today at (602) 999-9499.

What Is A Hard Money Loan?

Hard Money Loan Definition

The definition of hard money loan is: A last resort loan or short-term loan to close a bridge or gap in your finances. A hard money loan is not based on credit but it backed by the overall value of the property.  Due to the property being used as the protection against default from the borrower, these type of loans usually have a low loan-to-value ratio also known as (LTV) typically lower than other traditional loans.

Brad Loans Explains “Hard Money Loans”

A hard money loan will usually carry higher interest rates than subprime loans or traditional loans. Traditional lenders don’t usually make hard money loans, hard money lenders are usually private investors that see potential in this risky market. Hard Money loans are commonly used in quick flip, short term financial needs or by loan borrowers with bad credit but have equity in the property they own and wish to avoid foreclosure.

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