The process of obtaining a hard money loan is substantially less difficult than that of obtaining a bank loan; nonetheless, applicants still need to be aware of what they are getting themselves into before submitting an application. There are five questions that you should ask yourself before you sit down to talk with your hard money lender if you are considering using hard money to fund a real estate acquisition. Here are the questions:
1. What strategies do you have in place to pay the monthly loan payments?
Due to the fact that hard money loans are asset-secured loans, it is essential to ensure that you will be able to make the monthly payments on the loan in order to avoid losing the property that is used to secure the loan. Numerous hard money lenders, provide loans that are contingent solely on the repayment of interest. There are also some that will contain cash to construct a payment reserve, provided that the property in question has a loan-to-value (LTV) ratio that is sufficiently high to meet the higher loan amount.
2. Could you please describe the appearance of your credit history?
Your credit history and score can nevertheless have an impact on the interest rate that you are charged for your loan, even though hard money lenders do not normally base their acceptance decisions on credit scores in the same way that banks and other institutional lenders are required to do. As a result, before to submitting your application for a loan, it is recommendable to take care of any problems that you could be experiencing with your credit.
3. How much of a return do you expect to receive on your investment?
Before submitting an application for a hard money loan, it is essential to consider the expenses of the loan, which are generally always greater than those of a standard commercial mortgage, in comparison to the return that you anticipate receiving (either from the sale of the property or from the enhancement of its potential to generate revenue).
4. How do you plan to pay off the majority of the loan installments?
If you want to get a hard money loan, this is perhaps the most crucial question you need to answer before you get one. This is because your hard money lender will definitely want to know the answer to this question before they will approve and underwrite your loan. The duration of hard money loans is often between six months to three years, making them a type of short-term loan. Refinancing with a conventional lender or selling the home are two common exit alternatives that are utilized.
5. Do you have a connection with a lender who has a good reputation?
There are both good and bad hard money lenders, just like there are in any other industry. Be wary of brokers who are pretending to be hard money lenders but who are unable to actually decide whether or not to fund your loan on their own for whatever reason. If you are looking for a reliable lender, they will supply you with referrals and testimonials to assist you in conducting necessary research on them. Additionally, you should be sure to inquire about the terms of their loan, and you should steer clear of any lender who either refuses to provide their terms or whose terms appear to be too good to be true (as they typically are!).
