hard money loans

How to Get Approved for Hard Money Loans In Arizona

By on April 11, 2016   /   hard money loan approval, hard money loans  

How To Get Approved For A Hard Money Loan Arizona

Usually a hard money loan is obtained by the borrower to finance an investment opportunity in real estate; rather than borrowing from a bank, funds for a hard money loan come from private investors. If you find your credit is not high enough to get secured a loan through a bank, a hard money loan may be an appropriate method. Although, unlike bank loans, a hard money loan through a private investor is not regulated by the Office of Thrift Supervision or Federal Reserve. Because of that, the application process could vary from the traditional loan process received at a bank. The purpose of this article is to help guide you through the application process of obtaining a hard money loan.

Part 1 out of 3: Locating Reliable Hard Lenders

  1. Do your research.

You should research the hard lenders located in your area that are appropriate for your needs. If your reason for finding a hard lender is due to being rejected by the bank, you could find it tempting to use the first hard lender you locate to quickly obtain your funds, but you should do the research first. There are hard lenders out there that have a genuine interest in helping you with the real estate finances. However, there are hard lenders that and merely legalized loan sharks. The following are some questions you should ask yourself as you research and assess the potential lenders:

  • Is there a legitimate website for the lender? There are many hard lender websites that are designed simply to collect your information and then pass it to a third party. You should avoid these types of sites.
  • Is there a good relationship between the lender and investors? Look into any possible lawsuits that are pending between the investors and lender for foreclosed properties or bad loans. You can use the findings as a warning for the lenders’ financial health.
  • Does the lender have staff that you can contact and meet with? There are hard lenders who operate nationally, but it may be better to find a hard lender that’s located within your state as they often want to view the proposed property first.

Part 2: Consider pros and cons:

Prior to accepting a hard money loan, you should consider the pros and cons because they are designed to be more short-term investments lasting 12 months or less. Is this a time frame that you can afford to pay the loan back?

  • In addition to the time frame, hard money loans come with higher interest rants than with a bank loan and commonly range between 12% and 20%. There are usually added fees, and closing costs that the borrower must cover as well.
  1. Evaluate the loans time-frame:

Usually a hard money loan is approved and processed quicker than a bank loan; where a bank usually has to wait 30 days prior to approving a loan, a private lender can often approve a loan within just two weeks or less. If you can afford to repay the loan within the given time-frame and need to fund a real estate project fast, a hard money loan could be your appropriate method.

Part 2 out of 3: Applying for the Hard Money Loan

  1. Present the properties potential value:

When dealing with hard money loans, you are not working based on your credit score. Instead, you are using the property’s collateral value. Therefore, you will need to present documents like the property’s architectural plans, any detailed budgets such as construction, and/or contractor bid sheets that cover renovations or repairs.

  • Although there are cases of hard money loans being granted to first time home buyers, it is more common for them to be obtained by developers with the goal of buying a property and refinancing it or quickly re-selling it. The hard money lenders want to ensure that the property and location are going to be a safe investment.
  • You should be ready to show proof of the neighborhoods value and the value of the particular property;  for example, what is the price of similar properties within the area? What is the neighborhood market history? What is the growth projections for the area? It is these types of documents you need to have ready to provide the hard money lenders. There are sites that can help you collect this information, such as www.trulia.com, www.zillow.com and www.realtor.com.
  1. Provide investors a clear financial plan:

In most cases, hard money lenders are willing to fund 60% to 70% of the after repair value or ARV and the borrower must fund the other 30% to 40%. If you happen to have this amount on hand, it will help your chance of securing a hard money loan. Otherwise, the lender may be willing to put a lien on an additional property of yours for the remaining 30% to 40%.

  1. Prepare any additional documents:

While hard money lenders are mainly concerned with the property value of the location you want to purchase, they may ask for personal financial information as well. This could cover financial documents like pay stubs, W-2’s, bank statements or other types of documents that show up in a credit history. It will help your chances if you are prepared to show this information upon request.

  1. Be able to legally protect yourself:

Before you ever sign any type of paperwork from a hard money lender, ensure that you review the loan terms with your attorney. Private investors are subjected to very few regulations, so you need to ensure that your legal rights are protected.

  1. Keep constant contact with the lender:When requesting a loan through a hard money lender, they want to see you’re really interested in the loan. You should return any calls quickly and provide requested information within a timely manner as well. Because hard money lenders have less capital available than a bank, if there are any delays providing information they may use their assets with other borrowers first.

Part 3 out of 3: Receiving the Loan

  1. Quickly move on an investment:

Often times, a hard money loan is for property that will not be on the market for a long time. You should ensure that all of your documentation is lined up correctly, so that you are able to put that loan to use. You should also give all of your team from designers to contractors a clear timeline of when they need to act. You will most likely need to sell the home within the year, so you need to be efficient.

  1. Prepare to pay any additional underwriting fees and/or closing costs:

To advance in the loan process, hard money lenders will commonly request the borrower to cover these additional costs. You need to be prepared with the money for these additional finance costs.

  1. Have secure property insurance:

There are many hard money lenders that will require the borrower to provide property insurance that will cover any type of damage that is done to the property during renovations or repairs. It is normally cheaper if you are able to bundle your property insurance with a company that you are using for life insurance or car insurance.

  • In the event of purchasing the home through a realtor, they are able to suggest sources to receive affordable insurance for the property.
  1. Paying the loan back:

Hard money loans are usually designed with the concept of quickly paying it back in 12 months or less. In the event the loan is not paid back within the agreed time, the lender could be liable to collecting your home for collateral. In order to avoid this from happening, you should make sure you can afford the scheduled repayment plan that is stipulated within the loan agreement contract.

  • Many hard money loans have stipulations that state that you will repay the loan in one lump sum after the house sells; this single payment should cover all of the principle on the loan as well as the interest.
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Advantages and Disadvantages of Hard Money Loans

By on March 3, 2016   /   hard money loans  

Advantages & Disadvantages of Hard Money

If you’re searching for the Advantages & Disadvantages of Hard Money this post is for you. When someone brings up a hard money loan, many think of it in terms of a loan shark type of investment, however, a hard money loan is a great business resource that is done through professionals that are knowledgeable in different loan areas. Hard money loans can be a good advantage for real estate investments for many.

Conventional lending to real estate investors are not very common, this causes investors to turn to hard money financing to take the slack between being able to get the property and the permanent financing they will need. Hard money loans are not cheap, but does serve its purpose in the long run. It may be possible to find hard money lenders that charge less, but the majority of hard money lenders are going to charge about five points and a fifth-teen percent interest.

A hard money loan offers the advantage of borrowing the funds needed to renovate. Many investment properties will have a little equity potential, whereas a home buyer might find the same property’s condition to be discouraging. Investors can purchase these properties and renovate them so that a home buyer will find them more attractive, thus, making the home buyer want to pay a better price for them. Hard money is one of the options that lets investors do just that.

The market today allows an investor to acquire a conventional loan, but they would be expecting the investor to put twenty to twenty-five percent down, and that is just for the money to get the property, any renovations would have to come out of the investors pocket. Hard money lets the investor purchase the property and make the repairs needed, and only need about ten percent down on the entire amount.

For instance, when purchasing a property at $50,000 that is going to need another $20,000 made in repairs would cost the investor to have to have $30,000 out of pocket money if using a conventional loan ($50,000, the twenty percent they charge, plus the additional $20,000 needed for repairs). Now, if the investor used a hard money loan it would cover both, the purchase amount and the repair amount, with the out of pocket expense being only around $7,000. Investors are more than willing to add these additional costs due to the leverage they have from the hard money loan.

Furthermore, an investor can get a conventional loan after they have used a hard money loan in acquiring and repairing a property, using the conventional loan as a permanent means of financing. Once the renovation has been done it raises the property’s value and the refinancing lender will be able to determine the investors loan amount by the new appraisal of the property, and usually, the lender will loan up to seventy-five percent of the appraised property value.  The investor might be able to get the conventional loan to cover refinancing the hard money loan, any closing costs and not have to use any out of pocket money, at all.

For instance, if we go by the figures mentioned above using the purchase price of $50,000, with another $20,000 estimated for repairs the appraisal could be about $100,000 or even a little more. If this is the case, the lender might allow $75,000 in financing for the investor, this would make it enough to cover the balance of the hard money loan and the closing costs.

Let’s assess the risks of a hard money mortgage lender:

There are mortgage lenders that will provide at risk borrowers mortgages, these are referred to as ‘subprime mortgages’, which is sometimes the only option for those with bad credit, but these can be risky. These types of loans are actually pretty similar to auto title loans which are backed by collateral of your car title.

A few of the Cons to consider are:

  • Their high interest rate – If a home is purchased using a hard money mortgage you are going to be paying longer for a long-term than with a prime mortgage.
  • Will you be able to pay it back? – In most cases, if you are going for a hard money mortgage it means that your credit is not so good and this is the only option you have. If this is the case, it is completely possible that you’ll end up being foreclosed on due to not being able to keep up with the new payments you are going to have.

When is the right time to borrow?

If you are committed at what you do then taking out a hard money mortgage could have its advantages for you.
The best time to borrow would be when you can go by these tips:

  • When you can be honest with yourself about the personal risks involved.
  • When you can take into consideration any unforeseen circumstances that could occur.

Time to prepare for the change in guidelines:

In the past Fannie Mae may have required investors to be on the title for a minimum of ninety days, but starting on May 1st, 2011 it began requiring that they be on the title for one hundred and twenty days before they would finance them. Though it may not seem a long time, for an investor to have to wait this time out could be devastating.

For investors who are planning on refinancing using hard money after May 1st of 2011 here are a few precautions you should take:

  1. You may be approved for a refinance today, but come four months down the road that could change due to guideline approval changes. To be certain that nothing is going to come as a surprise in four months from now you should ask your lender about what would happen to your credit if changes are made to the guidelines.
  2. Be certain that you don’t do anything that is going to lower the status you have making it where you will not be approved at a later time. That includes changing your job or your work status, and don’t apply for new credit or use more of the credit you may already have, and do not use all the money from your savings or checking accounts.
  3. Keep updated on any property sales in your area that could decrease your new property’s value. Keep in mind that even though your property may have been appraised one day for $100,000 does not mean that it will still have that value several months later.
  4. Prepare yourself for the interest amount on any seasoning period. It was possible to get refinanced in the past after only thirty days of purchasing an investment property, leaving you to only have to pay for one month of high interest. However, if you should get locked into a hard money loan for several months don’t forget to include this amount into your costs.

It doesn’t make any difference what your investing in, hard money financing may work out great for you. Whether the guidelines have changed when the time comes for you to need a loan you may find that a hard money loan gives you more leverage for the investment your making. However, you should always be on your toes when it comes to refinancing out of hard money.

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Hard Money Lender Interest Rates 2015 – Brad Loans

By on January 7, 2016   /   Blog, hard money loans  

Interest rates on hard money loans are much higher than traditional bank financed loans. The first reason why conventional residential or commercial property loans because there is a higher risk involved and shorter duration of financing. Interest rates are also dependent on how the real estate market is doing and the amount of hard money credit available.

Another factor is that most borrowers who use hard money need their loans quickly to purchase property at a profitable discount but their lack of credit requirements or debt make it almost impossible to get conventional Bank financed loans.

View the info-graphic and information below to find out the common interest rates of hard money lenders, how location and condition of your property effects points/interest rates and other loan fees associated with hard money lending.

Contents:

  • Infographic
  • Hard Money Interest Rates
  • Hard Money Points
  • Loan Fees
  • Loan Terms & Amounts
  • Interest Considerations
  • Points & Fees Consideration
  • Conclusion

hard-money-lender-interest-rates-2015

Interest Rates On Hard Money?

interest-rates-on-hard-money-loans-2015

Hard money lender’s interest rates depend on the lender. Common hard money interest rates can be as low as 8% interest all the way up to 21% interest with the average hard money interest rate falling in at 14%, and terms can last for 6 months to a few years. Some lending companies will defer your interest payments, being that most lenders don’t want interest payments during the rehab phase.

Default Interest Rates On Hard Money

When borrower’s default on hard money loans they might be charged a higher “Default Rate”. Default rates are controlled by law and have a cap, defaulting on a hard money loan could leave you stuck paying extremely high percentages upwards of 25%–29%. Some private money lenders will collect a pre-payment penalty and some offer loans with no pre-payment penalties.

Credit Scores Effect On Interest Rates

Credit scores of the borrower weigh heavily on interest rates, especially with hard money lenders. The borrower’s experience and ownership of property might also have an effect on the given interest rate by the lender.

Hard Money Points

how-many-points-do-hard-money-lenders-charge-loan-fees-2015

Not only will there be interest but hard money lenders also charge loan fees on your hard money loan. Typically, hard money lenders will charge you 2 – 10 points, or 2 – 10% of the total amount of the loan, this is referred to as your loan fee. It pretty common for a commercial hard money loans to start at four points, and go as high as 10 full points. 1 point is equal to 1% of the mortgage loan. Therefore, charging one point on $100,000 loan = $1,000 in loan fees. If you’re getting charged the 10 points, you are going to need to come up with $10,000 for the loan fee.

Loan Fees Associated

For investors that are used to traditional bank loans only having 1% or lower loan fees, this higher percentage can be a “shocker”. Usually this loan fee is set in stone and isn’t effected by experience, credit or the property’s characteristics.

Another factor that should be taken into consideration is the amount of time it takes for the lender to fund the loan. If you are new to their company it might take a little longer than someone else that has already had a loan funded previously. Taking this into account, it’s a smart decision to find a hard money lender that you can build a rapport with for future lending purposes. You want to be able to get your loan funded as fast as possible when trying to take advantages of great investment properties.

Loan Terms & ARV (After Repair Value) Amounts 

ARV-loan-percentage-amounts-hard-money-loans

You want to find a hard money lender with terms that suit your needs. Here are the basic terms hard money lenders offer. Most lenders will only loan you 70% ARV (After Repair Value) of your home. The means that the lender is able to loan you 70% of what your repaired home is worth. For example: Let’s say you have a home worth $50,000 in its existing condition and its needs $10,000 worth of repairs, so after repairs, the new market value is worth $100,000. In this case the hard money lender would only be able to loan you $70,000 dollars.

**Important: All borrowers of hard money should use a real estate attorney to make sure your property is not sold or given away by you going into default or having late payments. Most of these procedures could be stopped by a credible real estate attorney and would require a court judgment.

How The Location & Condition Of Your Property Effects Loan Points & Interest Rates

Locations Effect On Points

what-are-the-loan-fees-for-hard-money-loans-2015

The location of the property your buying has an effect on the amount of points you will be charged for loan fees. A great location will keep you in the 2-6 points range, an average location will cost you 3-8 point and a bad or remote location will cost you 5-12 points.

Location’s Effect On Interest Rates

how-much-interest-do-hard-money-lenders-charge-2015

The location of the property your buying also has an effect on the interest rate you will be charged for loan fees. A great location will keep you in the 9-12% interest range, an average location will cost you 10-13% interest and a bad or remote location will cost you 11-14% interest on top of your financed loan amount.

Condition Of Property’s Effect On Points

Depending on the condition of your property, you may have to pay additional loan fees. A property in bad condition will cost you an additional 1 to 3 points. A property in average condition won’t cost you any additional but a property in great condition could actually save you 1 to 2 points off of your loan fee.


Condition Of The Property’s Effect On Interest Rates


Depending on the condition of your property, you may have to pay additional loan fees. A property in bad condition will cost you an additional 1 to 3% interest. A property in average condition won’t cost you any additional but a property in great condition could actually save you .5 to 1% off of your interest rate.


Credit Scores Impact On Interest Rates & Points On Hard Money Loans


Credit’s Effect On Points


Credit scores impact the amount of points you will be charged in additional loan fees. Bad credit will raise your loan 1 to 3 points. Average credit will not affect your loan and great credit could possibly get you a discount of .5 to 1 point.


Credit’s Effect On Interest Rates


Credit scores also impact the amount of additional interest you will be charged on top of your loan fees. Bad credit will raise your rate 1 to 3%. Average credit will not affect your loan and great credit may get you a discount of .5 to 1%.


Conclusion:

It’s safe to say that if you are looking for a hard money loan, make sure that you have good credit, your property is in a good location/condition and that you are able to make payments on time to avoid the costly fees associated with hard money lending/financing.

 

Loan Programs, Rates & Fees We Offer in Phoenix, AZ: No Pre-Payment Penalty

 

OWNER OCC OR INVESTOR 20-30 YEAR FULLY AMORTIZED 70% LTV

  • 11.99% – cost: greater of $3,000 or 6 points + $1,920 eMortgage fees
  • 13.99% – cost: greater of $2,000 or 4 points + $1,920 eMortgage fees
  • No pre-payment penalty
  • Purchase or Refinance

OWNER OCC ONLY 20-30 YEAR FULLY AMORTIZED 80% LTV

  • 12.99% – cost: greater of $3,000 or 6 points + $1,920 eMortgage fees
  • 14.99% – cost: greater of $2,000 or 4 points + $1,920 eMortgage fees
  • No pre-payment penalty
  • Purchase or Refinance

OWNER OCC ONLY RE-FINANCE 20-30 YEAR FULLY AMORTIZED 65% LTV

  • 14.99% – cost: (NO Points!) $1,920 eMortgage fees
  • No pre-payment penalty
  • Owner Occupied Refinance only
  • Interest Rate Buy Down Fee: 2% of loan amount for 1% of reduction in interest rate

FIX & FLIP INVESTOR ONLY ONE YEAR 70% LTV

Interest Only

  • 15.99%
  • 0 points
  • $1,920 eMortgage fees
  • 4 month interest minimum
  • No pre-payment penalty
  • Purchase or Refinance

INVESTOR ONLY 20-30 YEAR AMORTIZATION 70% LTV

  • 11.99% – cost: greater of $3,000 or 6 points + $1,920 eMortgage fees
  • 13.99% – cost: greater of $2,000 or 4 points + $1,920 eMortgage fees
  • Refinance or Purchase
  • No pre-payment penalty
  • Purchase or Refinance

View all of our Loan Programs

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