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How To Get a Hard Money Real Estate Loan
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Published on: 18 June 2022
Last Updated on: 08 November 2024
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If you are an investor that has plans on doing Fix-and-Flip projects or if you are looking to invest in rental property, you will need some loans. Lucky for you, there are a lot of options out there.
By far, the most common that is popular with investors is hard money Real Estate loans. This type of loan is not acquired from a bank or some other loan lending business. Getting hard money loans is done through private lenders.
You will have to find a private lender that is able to give you a hard money Real Estate loan. You can use it to fund your projects or investments short term. You are probably wondering how everything works and where can you get a hard money loan. Who should you contact? How to find the right lender? What are the risks? We will answer all of these questions in order to help you understand everything better.
So without wasting more time, here is what you need to know before you get a hard money Real Estate loan.
Hard Money Lending Basics
Depending on your needs, hard money Real Estate loans can be the thing you are looking for. If you are an investor that is looking to make a quick profit with the Fix-and-Flip strategy, then this is for you. Keep in mind that these loans are only used short-term and not over long periods of time.
The most important thing for a hard money lender is to make sure the property is worthwhile. If they find the property acceptable and they are certain of its value, you will get the loan. This usually happens very soon after they finish the evaluation and you are offered a loan.
You might be thinking, “Why don’t I get a loan from a bank?”
Well, the main difference, apart from how much faster you get a hard money Real Estate loan, is that the bank might not give you a loan. Simply, a bank will not take as many risks as a hard money lender will.
Additionally, the bank has a surprisingly long list of loan eligibility requirements that you need to take care of before the bank even considers giving you a loan. If you do qualify for a bank loan, you will have to wait much longer compared to hard money loans. Compared to that, hard money lenders do not require as much. They are willing to take on more risks.
Do remember that the hard money loans for real estate are short-term. They are usually about 1 year; some can go up to 2 years. Extremely rarely are they given for periods of time that are longer than that.
You will be required to pay the interest every month, while the bigger payment awaits you at the end. If everything we said so far got your interest, then this might be for you.
Getting a Hard Money Loan
If you never got a hard money Real Estate loan, and you have only gone to banks for loans, it can be difficult and confusing at first. Like with everything else, once you manage to do it once, it becomes so much easier.
Finding a good hard money lender can really help you out in the long run. Working with the same lender can help you build a relationship with them. This way, you will get the loans easier for future projects.
Finding a good lender can prove difficult if you do not know where to look. A good place to start is online. A simple Google search can do the trick. There you can find hard money lenders that are close to you, so you can contact them.
Pro Tip: Another option is to join a group of people, such as a real estate club. You can find lenders here as well. Lastly, you always have the option of asking someone. Ask your fellow investment friend, some real estate agents, if they know someone. This way, you can find the most professional and trustworthy lenders out there.
Potential Risks
When you finish your research, it is important that you carefully select the right lender. Try to find as much information as you can. There is always a risk that they might not be trustworthy and that you can get into some serious problems because of them.
The real hard money lenders are usually active on at least one platform. This way, you can find reviews about them, and that way, gather the necessary information. By doing so, you will secure yourself from the potential scams.
Additionally, be careful about the interest rates. Not realizing at first that you decided on a higher rate can prove quite problematic down the line. Another way of choosing the right lender for you can be to find the ones that focus on specific areas. If you are investing in real estate, find a lender that only lends to real estate lenders.
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